CAS Professional Ethics and Standards 2 — Questions and Answers
Question 1: Under ASOP No. 41, when an actuary's work product contains a material assumption that significantly deviates from what another actuary would consider reasonable, what must the actuary do?
- Omit the assumption from the report to avoid confusion
- Disclose the assumption and the rationale for its use (Correct answer)
- Obtain written approval from the client before including it
- Replace it with a more conservative assumption
Correct answer: Disclose the assumption and the rationale for its use
ASOP No. 41 requires actuaries to disclose material assumptions and explain the rationale when those assumptions may not be considered reasonable by other actuaries.
Question 2: A CAS member is asked by their employer to sign an actuarial opinion they did not prepare and disagree with. What is the appropriate course of action?
- Sign it under protest and document the disagreement internally
- Refuse to sign and, if necessary, resign from the assignment (Correct answer)
- Sign it and add a footnote indicating partial disagreement
- Request that a peer review be conducted before signing
Correct answer: Refuse to sign and, if necessary, resign from the assignment
An actuary must not sign an opinion they disagree with; if pressured, they should refuse and may need to withdraw from the engagement.
Question 3: Which of the following best describes the concept of 'materiality' in actuarial standards of practice?
- Any item that affects the final numerical result by more than 1%
- An item whose inclusion or exclusion could reasonably influence a decision-maker's conclusions (Correct answer)
- Items specifically listed as material in the applicable ASOP
- Any assumption that differs from industry benchmarks
Correct answer: An item whose inclusion or exclusion could reasonably influence a decision-maker's conclusions
Materiality refers to whether an item could reasonably affect decisions made by those relying on the actuarial work product.
Question 4: An actuary discovers a significant error in a previously issued reserve opinion after the financial statements have been filed. What should the actuary do first?
- Notify the state insurance department immediately
- Inform the principal and discuss the need for correction or disclosure (Correct answer)
- Issue a corrected opinion without notifying the client
- Wait to see if the error is discovered by auditors
Correct answer: Inform the principal and discuss the need for correction or disclosure
The actuary's first duty is to notify the principal of the error so the appropriate corrective action, including potential disclosure, can be determined.
Question 5: Under the CAS Code of Professional Conduct, Precept 4 addresses which of the following?
- Maintaining competence in actuarial practice
- Upholding the reputation of the actuarial profession
- Performing actuarial services only when qualified (Correct answer)
- Keeping client information confidential
Correct answer: Performing actuarial services only when qualified
Precept 4 states that an actuary must only perform actuarial services for which they are qualified by knowledge, skill, and experience.
Question 6: A property-casualty actuary is asked to opine on a life insurance reserve. She has no life actuarial training. Which precept of the Code is most directly relevant?
- Precept 1 — Integrity
- Precept 3 — Standards of Practice
- Precept 4 — Qualification Standards (Correct answer)
- Precept 7 — Conflict of Interest
Correct answer: Precept 4 — Qualification Standards
Precept 4 requires that an actuary be qualified for the specific type of actuarial work performed; P&C training does not qualify one for life reserve opinions.
Question 7: When an actuary relies on data provided by others, what does ASOP No. 23 require?
- The actuary must independently verify all data before use
- The actuary must disclose reliance on the data and note any material deficiencies found (Correct answer)
- The actuary is fully absolved of responsibility for any data errors
- The actuary must obtain a written certification from the data provider
Correct answer: The actuary must disclose reliance on the data and note any material deficiencies found
ASOP No. 23 requires actuaries to disclose reliance on data supplied by others and to note any material data deficiencies discovered during review.
CAS Professional Ethics and Standards 2
Under ASOP No. 41, when an actuary's work product contains a material assumption that significantly deviates from what another actuary would consider reasonable, what must the actuary do?