Materiality

Question 1

three contexts where materiality arises

Answer 1

• inclusion – Does it need to be considered?
• refinement – Is it accurate enough?
• disclosure – Does it need to be reported?

Question 2

definition of materiality

Answer 2

an omission, understatement, or overstatement in a work product is material if it is likely to affect either the intended principal user’s decision-making or the intended principal user’s reasonable expectations

Question 3

examples of quantitative measures for materiality (4)

Answer 3

• ratio of item to reserves or statutory surplus (5%-20% is reasonable)
• impact on IRIS ratios
• impact on RBC
• ratio to net worth

Question 4

per ASOP 36, what materiality is based on (3)

Answer 4

• intended purpose
• materiality guidelines
• professional judgment

Question 5

sources providing guidance on materiality

Answer 5

• SEC
• FASB
• NAIC Financial Condition Examiners Handbook
• federal and state courts