Actuarial review support for audit teams

An auditor's specialist is a person or organization with expertise in a field other than accounting or auditing whose work the auditor uses to gather audit evidence (AU-C 620, paragraph .06). The application material gives an example that fits this page: the actuarial calculation of liabilities associated with insurance contracts or employee benefit plans (paragraph .A1). The specialist can be internal, a partner or staff of the firm or a network firm, or external, which is how a reviewer from outside the firm usually sits.

The term has a twin that causes mix-ups. A management's specialist is someone the client uses to prepare its financial statements, such as the actuary behind the pension valuation. The two roles carry different duties for the auditor.

AU-C 540 paragraph .17 gives the auditor three approaches to an accounting estimate, used alone or together. A specialist review helps most with the second and third.

For a developed range, paragraph .28 requires that it holds only amounts supported by sufficient appropriate audit evidence and judged reasonable by the auditor. That is why our reviews return a range and the reasons behind its edges, not a single replacement number.

When the client's own actuary produced the figure, AU-C 501 paragraph .27 asks the auditor to evaluate that actuary's competence, capabilities and objectivity, understand the work and decide whether it works as audit evidence. A firm that lacks the expertise to do that evaluation itself is the one that brings in an auditor's specialist.

Not in the ordinary case, and the standard says why. AU-C 620 paragraph .A19 lists the threats to objectivity: self-interest, advocacy, familiarity, self-review and intimidation. Paragraph .A20 adds that safeguards may be unable to bring the threat down to an acceptable level when the proposed specialist has played a significant role in preparing the information being audited, which describes a management's specialist. An actuary checking their own valuation is the self-review threat in its plainest form.

Paragraph .A21 gives the auditor a way to test for it. The auditor can ask the entity and the specialist about financial interests, business and personal relationships and the provision of other services to the entity, and can obtain a written representation. We run that inquiry first in every engagement.

If Finbryn prepared the client's valuation, reserve study or IBNR estimate, or any workpaper that feeds it, we decline the review. The reverse holds too: a firm that engages Finbryn to review an estimate does not also have Finbryn prepare that estimate for the same engagement. The engagement letter records both rules.

The review file follows the estimate. Each row below lists the data tie-out, the tests on assumptions and method, the recomputation and the actuarial standard the reviewer reads against, with the standard's effective date from the Actuarial Standards Board list.

Finbryn takes de-identified claims data only and does not take protected health information. ASOP 23, effective for work using data received on or after April 30, 2017, says the accuracy and completeness of data supplied by others is the responsibility of those who supply it and that the actuary needn't audit the data. Our tie-out therefore reports exceptions to the firm and the client, and it doesn't certify the data.

Three AICPA changes reach this work, and one starts with the audit of the year beginning January 1, 2026 for a calendar-year client.

Paragraph .A14 notes that an auditor's external specialist is not a member of the engagement team and is not covered by the firm's own quality policies, though the firm's policies may reach the specialist through ethics requirements. Planning for the December 31, 2026 audit is where a firm decides how its policies apply to an outside reviewer, so we ask for them at the start and write the scope to match.

The audit team receives a review file, not a replacement valuation. It holds the independence record, the data tie-out and exceptions list, the assumption memo, the recomputation or second-method estimate with a range, and a review note. Your firm's own actuary, or a credentialed actuary your firm engages, reviews the file and signs the note.

The diagram follows one request from the firm to its own conclusion. It shows the independence check first and the signature just before the firm judges the adequacy of the work under paragraph .12, which is the step only the firm can take.

ASOP 41 says an actuarial communication should clearly identify the actuary responsible for it, so the note names the signer and the standards applied. The signer's qualification follows the US Qualification Standards, in effect as of January 1, 2022 per the Academy. Finbryn prepares the working layer, and neither the note nor the file describes the work as audit evidence; the engagement team decides that.