if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the syndicate annual accounts.The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
Based on our understanding of the syndicate and its industry, we considered that non-compliance with the following laws and regulations might have a material effect on the syndicate annual accounts: anti-money laundering regulation, permissions and supervisory requirements of the Prudential Regulation Authority (‘PRA’) and the Financial Conduct Authority (“FCA”), and regulations set by the Council of Lloyd’s.
To help us identify instances of non-compliance with these laws and regulations, and in identifying and assessing the risks of material misstatement in respect to non-compliance, our procedures included, but were not limited to:
•Gaining an understanding of the legal and regulatory framework applicable to the syndicate and the industry in which it operates, and considering the risk of acts by the syndicate which were contrary to the applicable laws and regulations, including fraud;
•Inquiring of directors and management of the Managing Agent and the syndicate’s management as to whether the syndicate is in compliance with laws and regulations, and discussing their policies and procedures regarding compliance with laws and regulations;
•Inspecting correspondence, if any, with relevant licensing or regulatory authorities including the PRA, FCA and the Council of Lloyd’s;
•Reviewing minutes of meetings of the Managing Agent in the year and up to the date of this report; and
•Discussing amongst the engagement team the laws and regulations listed above, and remaining alert to any indications of non-compliance.
We also considered those laws and regulations that have a direct effect on the preparation of the syndicate annual accounts such as United Kingdom Generally Accepted Accounting Practice, The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008, and the Lloyd’s Syndicate Accounts Instructions.
In addition, we evaluated the directors’ and management of the Managing Agent’s and the syndicate management’s incentives and opportunities for fraudulent manipulation of the syndicate annual accounts, including the risk of management override of controls and determined that the principal risks related to posting manual journal entries to manipulate financial performance, management bias through judgements and assumptions in significant accounting estimates, in particular in relation to the valuation of the provisions for the settlement of future claims estimated premium income and application of non-standard earning patterns, and significant one-off or unusual transactions
Our audit procedures in relation to fraud included but were not limited to:
•Making enquiries of the directors and management of the Managing Agent and syndicate management on whether they had knowledge of any actual, suspected or alleged fraud;
•Gaining an understanding of the internal controls established to mitigate risks related to fraud;
•Discussing amongst the engagement team the risks of fraud;
•Addressing the risks of fraud through management override of controls by performing journal entry testing;
•Reviewing the accounting estimate in relation to valuation of insurance liabilities for evidence of management bias and performing procedures to respond to the fraud risk in revenue recognition;
