CIA Materiality

Question 1

Situations in which materiality arises

Answer 1

• Inclusion - Whether an item shuold be considered
• Refinement - Whether an item is accurate enough
• Disclosure - Whether a fact needs to be reported

Question 2

Define materiality

Answer 2

An omission, understatement, or overstatement is material if the actuary expects it materially to affect either the user’s decision making or the user’s reasonable expectations

Question 3

What is materiality not ?

Answer 3

• Range of reasonable values in an actuarial estimate

* Inherent uncertainty associated with actuarial estimates

Question 4

List factors affecting appropriate degree of rigor in establishing/communicating selected materiality level

Answer 4

Needs, skill, sophistication, and experience of the intended audience for the actuary’s work

Question 5

List characteristics of an entity the materiality level is expected to vary according to

Answer 5

• Size
• Type of business
• Access to capital
• Stage in the organizational life cycle
• Net retention
• Financial strength

Question 6

Discuss communication and disclosure to users concerning materiality

Answer 6

• Complexity of the concept
• Importance of the concept to users
• Sophistication of users

Question 7

Give materiality level based on purpose and intended uses of work

1. Regulatory and Solvency Issues
2. Appraisal Work
3. DCAT Work
4. General Financial Statement Work

Answer 7

• Regulatory or solvency
Level is typically related to statutory surplus or the solvency benchmark ratio

• Appraisal work
Level is generally related to net worth, NI or Earnings Per Share

• DCAT work
Level is less rigorous than valuation work

• General financial statement work
Level is generally related to both NI and net capital

Question 8

Discuss the level of appropriate description and disclosure of materiality in a report

Answer 8

Need to balance between to little and too much.

• Too much: exaggerate importance of minor matters
• Too little: deprives users of needed information

What qualitative and quantitative information best serves the user’s understanding and decision making?

Question 9

On what does the actuary normally focuses when addressing materiality

Answer 9

The purpose of the work and its intended user(s)

Question 10

Discuss change in materiality level

Answer 10

Normally, an actuary would not change materiality level significantly from year to year. Except when approaching a threshold or some external benchmark.

For example, if close to breaching regulatory action levels, would agree that good grounds for changing the selected level of materiality