Examples of detail analytical review procedures that can be used in the consideration of risks and/or as direct tests of balances are discussed below. The examiner should consider analytical review information that has already been prepared by management. Examples include exhibits, charts, graphs and similar analyses included in the company’s internal management reports, board reports, divisions or line of business statistics, and similar documents. The key is not to calculate all the ratios possible, but to identify those few key relationships that best satisfy the examiners’ objective of substantiating or corroborating the account balance. When deciding whether to incorporate analytical review procedures into the examination program as substantive tests of balances, the examiner should consider the extent to which the underlying data should be tested.
The following list describes key data and relationships that could be used in performing detail analytical review procedures for certain inherent risks. These ratios also may be used as substantive tests of account balances. Fluctuations in these relationships may indicate changes in operating policies, accounting methods, business mix, or other conditions or circumstances (e.g., a change in benefit ratios may indicate a shift in line of business or product mix, or changes in costs or premium rates).
To make the most effective use of analytical review procedures, it is important that the key data and relationships be calculated for specific lines of business or insurance products.
The list is not all-inclusive, nor does it represent required procedures for all insurance examinations. To avoid repetition, year-to-year (or other period) comparisons and comparisons to budget are not included in this list.