Prudential Regulation Authority Rulebook

3.1

External audit of the SFCR refers to an independent auditor gathering sufficient appropriate evidence to provide an overall reasonable assurance opinion that the public disclosure in scope complies in all material respects with PRA rules and Solvency II Regulations. Reasonable assurance is a high level of assurance described in relevant auditing standards.^[4] It is achieved when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk (that is the risk that the auditor expresses an inappropriate opinion when the SFCR is materially misstated) to an acceptably low level. External Audit 2.2 describes the relevant elements of the public disclosure in scope in the ‘Valuation for solvency purposes’ and ‘Capital management’ sections of the SFCR subject to the two exemptions. First, the Solvency Capital Requirement (SCR) and information that derives from it, is exempt if calculated using an approved full or partial internal model (External Audit 2.2(3) and 2.2(4)). Secondly, where Solvency II requires information in the SFCR to be produced using sectoral rules (External Audit 4.2 explained in paragraph 3.3 below).

3.2

PRA rules apply whenever a SFCR is disclosed, whether at the solo or, where relevant, at the group and sub group level. Information in relation to undertakings included in the SFCR (including undertakings established in the UK and those established in a third country) will therefore be within scope for external audit (except where the information in the group SFCR has been compiled in accordance with sectoral rules).

3.3

Where information for the group SFCR is compiled in accordance with sectoral rules (as required under Solvency II), the group auditor should undertake an assessment of whether that information has been properly extracted in accordance with the relevant sectoral rules, from information provided to the insurer by other undertakings of the insurance group and from the insurer’s own records. An external audit of sectoral information is not required.

3.4

The auditor is not expected to express an opinion on the validity of an approval, waiver or other supervisory determination. Instead approvals, waivers and supervisory determinations provided by the competent authority should be considered as part of the framework against which the audit opinion is being given. For the purposes of transitional measures on technical provisions, Pillar 1 and 2 assets, liabilities and capital calculated in accordance with the previous regime, should be treated as part of the framework against which the audit opinion is being given.

3.5

External Audit 4.1(3) requires that the auditor read and consider all information disclosed by the firm in its SFCR that is not subject to the reasonable assurance opinion as a relevant element of the SFCR (other information) to identify material inconsistencies with the relevant elements of the SFCR and any knowledge obtained during the course of the audit of the SFCR engagement, and (where applicable) audit of the financial statements. When complying with this rule, the PRA expects the auditor to follow ‘International Standard on Auditing (UK) 720 (Revised November 2019) The Auditors Responsibilities Relating to Other Information’.^[5]