Thesis (PhD (Accounting))--University of Stellenbosch, 2005. / ENGLISH ABSTRACT: The South African long-term insurance industry is currently believed to be at an
important crossroads in its existence. The industry is haunted by concerns about
high cost structures, a lack of transparency in disclosure to policyholders, unfulfilled
expectations of policyholders and the proliferation of available investment vehicles in
the market. These concerns are exerting pressure on the existing products and
practices of South African long-term insurers.
The audits of these insurers are of a complex and high-risk nature as a result of the
complexity of their operations and, in particular, the highly complex actuarial
valuation process in respect of policy liabilities. The prevailing auditing standards in
South Africa require auditors to include policy liabilities in the ambit of their audit
opinions.
Recent investigations into failed long-term insurers and their audits, including those
of local Fedsure Life, British Equitable Life Assurance Society and Australian HIH
Insurance, demonstrate the high risk involved in the audits of long-term insurers.
Against this background, the objective of this research was to develop a best
practice framework for the formulation of overall audit strategies for policy liabilities
arising under insurance contracts and the related earnings of listed South African
long-term insurers.
To justify the focus of the research on the abovementioned components of the
financial statements of listed South African long-term insurers, a questionnaire was
developed and sent to auditors of all long-term insurers listed on the JSE Securities
Exchange South Africa for completion. Responses were processed to calculate a
Relative Inherent Risk Index specifically developed for use in this research, ranking
various industry-specific account balances and classes of transactions on the basis
of their potential exposure to inherent risk. The results of this process provided
significant support for the hypotheses that policy liabilities and the related earnings
are potentially exposed to the highest levels of inherent risk. The remainder of the
research consequently focused on these components. A further very comprehensive questionnaire was developed to collect data with
respect to respondents’ views of potential best practices for the audit of various
aspects relating to policy liabilities arising under insurance contracts and the related
earnings of listed South African long-term insurers, on the basis of their extensive
experience in the industry. This questionnaire was sent to experienced auditors
responsible for the audits of the five largest listed long-term insurers in South Africa
for completion.
Responses were received from four of the five potential respondents, resulting in an
80% response rate, enabling meaningful analysis and interpretation of the data.
Responses were analysed, interpreted and documented in the form of a detailed
best practice framework for the formulation of overall audit strategies for policy
liabilities arising under insurance contracts and the related earnings.
The lack of a fifth response was compensated for by a review of the research
findings by experienced auditors of Deloitte and the provision of their opinions
thereon. Deloitte was selected for this purpose as the fact that this auditing firm is
the only one of the so-called “Big Four” auditing firms that does not act as auditor of
one of the selected target long-term insurers, resulted in the initial exclusion of the
firm’s views from the research. The framework was updated to reflect these
opinions and now incorporates input from all of the so-called “Big Four” auditing
firms.
The framework provides a comprehensive discussion of all possible types of audit
procedures that may be relevant to the audit of all aspects of policy liabilities arising
under insurance contracts and the related earnings of listed South African long-term
insurers. As no such framework existed prior to this research, the development
thereof made a significant contribution to existing knowledge. This contribution is
the result of, inter alia, the method followed in designing the framework, resulting in it
representing a synthesis of, inter alia, the following:
• existing international and limited local guidance for auditors and, in particular,
auditors of long-term insurers, customised for the South African environment; • best practices currently in use on the audits of listed South African long-term
insurers; and
• views of experienced practitioners on the abovementioned types of best
practices that might not be employed at the moment, but that should, in their
views, be employed in future.
The valuable contribution of this research to existing knowledge is clear from the fact
that numerous publications in popular professional as well as accredited academic
journals, plus a paper delivered at a conference have resulted from it (refer to the
source list and Appendix A). Furthermore, the South African Institute of Chartered
Accountants has approved a project to update existing South African guidance for
auditors of long-term insurers on the basis of the findings of this research.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:sun/oai:scholar.sun.ac.za:10019.1/1103 |
| Date | 12 1900 |
| Creators | Von Wielligh, Simon Petrus Johannes |
| Contributors | Lubbe, D. S., Leonard, H., University of Stellenbosch. Faculty of Economic and Management Sciences. Dept. of Accountancy. |
| Publisher | Stellenbosch : University of Stellenbosch |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Rights | University of Stellenbosch |
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