The actuarial and external auditing professions : a comparative analysis in Maltese insurance and reinsurance companies

Abstract

PURPOSE: This study analyses the inter-relationship between the profession of an actuary and of an external auditor, particularly in the context of insurance companies in Malta. It identifies possible ways of enhancing a cooperative relationship between the two professions and examines the major developments affecting the professions, particularly those of Solvency II and IFRS 4 Phase II. DESIGN: A mixed methodology approach is adopted to address the three objectives of the study. Structured interviews are conducted with professionals forming part of the two populations of insurance and reinsurance undertakings licensed in Malta and of Audit firms in Malta. Subsequently, a non-parametric statistical test is used to identify any significant discrepancies between the mean rating scores of the two independent groups. All is complemented by structured interviews conducted with high individual profiles from the financial services industry in Malta to provide further insight on the research objectives. FINDINGS: The research evidenced the presence of an inter-relationship between the profession of an actuary and of an external auditor. The results indicated that both professionals must continue to develop their working relationship. The study suggests that professional guidance notes for effective communication between the two based on the UK standards will benefit both professions. CONCLUSIONS: The research revealed that overlapping areas between actuaries’ and external auditors’ jobs might exist with regards to consultancy and risk management roles. In fact, the two professionals could be competing for other areas in which they were not competing prior to the introduction of the Solvency II Directive. The study evidenced that both developments of the Solvency II Directive and IFRS 4 Phase II will bring together the audit and actuarial professions. The level of communication between the two professionals will undeniably increase and enhance on the basis that changes to regulatory and accounting standards will require joint input from both professions. VALUE: This study raises awareness on the actuarial and external auditing professions. Hence it should be useful to both professions and the insurers that engage them. The work presented is original in view that no similar studies have been carried out in Malta.