Actuarial policy liabilities in insurance companies and pension liabilities in Canadian corporations are often not subject to sufficient independent scrutiny says Nicholas Le Pan, superintendent, Office of the Superintendent of Financial Institutions.

Speaking at the general meeting of the Canadian Institute of Actuaries today in Montreal, Le Pan noted that insurers’ actuarial policy liabilities and corporate pension liabilities are important components of balance sheets and are crucial in understanding the position of policyholders and pension plan members. “They are supposed to be prepared according to demanding professional standards; yet, we find errors, too many errors,” he said.

“We find that these numbers, prepared by actuaries on behalf of management, are often not subject to an adequate independent review during the audit process. This is inconsistent with the general principles of audit,” he added, warning, “ We have to find a fix to this situation.”

Le Pan noted that if an auditor uses the work of the actuary and does not carry out a separate review, there is effectively no independent check of the largest number on an insurer’s balance sheet. “This seems to be exactly what is happening today in Canada and it can’t continue,” he said.

He noted that the CICA is re-examining its auditing standards, partly in reaction to this. And, OSFI has introduced external review for the work of the appointed actuary. And, he suggested that “it is time for the CIA to consider whether an independent actuarial standards board is appropriate for Canada.”

“In the next few years, a lot of our standards and practices will be reworked and made more rigorous. A lot will be demanded from all of us. It won’t be easy but it will lead to a stronger and more open system. We will have to work together on this. For my part, I can tell you that we at OSFI will be a demanding partner but will continue to need and value our cooperation with the CIA,” he noted.

Le Pan also noted that the Canadian Public Accountability Board recently completed its first cycle of reviews of the major public accounting firms. “Their report was not all rosy. In a number of cases, the Board has given firms a strict deadline to fix identified weaknesses and to justify the conclusions of their formal audit opinions,” he said.

“Now, having an independent body with public representation, such as the CPAB, looking over your shoulder and judging the quality of your work, is not something that many professionals are used to or particularly welcome. Nonetheless, it is a fact of life in this new century. Where matters of public trust in professionals’ work is concerned, it is bound to spread. We had all better get used to it,” he noted.