Brooklyn Life Insurance Company prepares its financial statements on a statutory basis in conformity with the accounting practices prescribed and permitted by the Insurance Department of the State of New York. This statutory basis produces financial statements that differ materially from statements prepared in conformity with generally accepted accounting principles. On the statutory basis, for example, agents’ first-year commissions are expensed instead of being partially deferred.
The company engaged its auditors, Major and Major Associates, to audit the statutory basis financial statements and report on them. Footnote 10 in the statements contains a narrative description and a numerical table explaining the differences between the statutory basis and GAAP accounting. Footnote 10 also reconciles the statutory basis assets, liabilities, income, expense, and net income (statutory basis) to the measurements that would be obtained using GAAP.
Write the audit report appropriate in the circumstances. The year-end date is December 31, 2017, and the audit fieldwork was completed on February 20, 2018. (The company plans to distribute this report to persons other than the department of insurance regulators, so the auditors need to follow AU-C 800.)