required to determine whether this gives rise to a material misstatement themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.We have nothing to report in this regard.
Responsibilities of managing agent
As explained more fully in the managing agent’s responsibilities statement, the managing agent is responsible for the preparation of the syndicate annual financial statements and for being satisfied that they give a true and fair view, and for such internal control as the managing agent determines is necessary to enable the preparation of syndicate annual financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the syndicate annual financial statements, the managing agent is responsible for assessing the syndicate’s ability to continue in operation, disclosing, as applicable, matters related to the syndicate’s ability to continue in operation and to use the going concern basis of accounting unless the managing agent intends to cease the syndicate’s operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the syndicate annual financial statements
Our objectives are to obtain reasonable assurance about whether the syndicate annual financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these syndicate annual financial statements.
A further description of our responsibilities for the audit of the syndicate annual financial statements is located on the FRC’s website at: . This description forms part of our auditor’s report. Extent to which the audit was considered capable of detecting irregularities, including fraud
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. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
We considered the nature of the syndicate and its control environment, and reviewed the syndicate’s documentation of their policies and procedures relating to fraud and compliance with laws and regulations. We also enquired of management about their own identification and assessment of the risks of irregularities.
We obtained an understanding of the legal and regulatory frameworks that the syndicate operates in, and identified the key laws and regulations that:
•had a direct effect on the determination of material amounts and disclosures in the financial statements. These included the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 and the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005), the Lloyd’s Syndicate Accounts Instructions; and
•do not have a direct effect on the financial statements but compliance with which may be fundamental to the syndicate’s ability to operate or to avoid a material penalty. These included the requirements of Solvency UK.
We discussed among the audit engagement team including relevant internal specialists such as actuarial andIT specialists regarding the opportunities and incentives that may exist within the organisation for fraud and how and where fraud might occur in the financial statements.
As a result of performing the above, we identified the greatest potential for fraud or non-compliance with laws and regulations in the following areas, and our procedures performed to address them are described below:
•Auditing standards require that we presume there to be a significant risk of fraud relating to the recognition of revenue. We relate this significant risk to the estimation of pipeline premiums on proportional reinsurance and delegated authority business, specifically the estimated premium income factor adjustment that is applied by management at a block of business level. In response, our testing included, comparing management’s prior year estimated premium adjustments to the current year and challenging the validity of the rationale behind the adjustments for each block of business.
•Valuation of technical provisions includes assumptions requiring significant management judgement and involves complex calculations and therefore, there is potential for management bias. There is also a risk of overriding controls by making late adjustments to the technical provisions. In response to these risks, we involved our actuarial specialists to develop independent estimates of the technical provisions. In addition, significant management judgement is exercised in the valuation of Catastrophe IBNR reserves given uncertainties in estimating claims emergence relating to event frequency and severity, data limitations and reinsurance recoveries. We assessed a
