The terms and definitions contained herein are intended to provide guidance only as the terms are used within this rule:

1. (1)

   1. (A) “Accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which he or she is licensed to practice.
   2. (B) With regard to Canadian and British companies, it means a Canadian-chartered or British-chartered accountant;
2. (2) An “affiliate” of, or person “affiliated” with a specific person, is a person that directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, the person specified;

3. (3)

   1. (A) “Audit committee” means a committee, or equivalent body, established by the board of directors of an entity for the purpose of overseeing:

      1. (i) The accounting and financial reporting processes of an insurer or group of insurers;
      2. (ii) The internal audit function of an insurer or group of insurers, if applicable; and
      3. (iii) External audits of financial statements of the insurer or group of insurers.

   2. (B)

      1. (i) The audit committee of any entity that controls an insurer or a group of insurers may be deemed to be the audit committee for one (1) or more of these controlled insurers solely for the purposes of this rule at the election of the controlling person.
      2. (ii) Refer to 23 CAR § 12-113(g) for exercising this election.
   3. (C) If an audit committee is not designated by the insurer, the insurer’s entire board of directors shall constitute the audit committee;
4. (4) “Audited financial report” means and includes those items specified in 23 CAR § 12-104;
5. (5) “Commissioner” means the Insurance Commissioner;

6. (6) “Group of insurers” means:

   1. (A) Those licensed insurers subject to the reporting requirements of the Insurance Holding Company Regulatory Act, Arkansas Code § 23-63-501 et seq.; or
   2. (B) A set of insurers as identified by management for the purpose of assessing the effectiveness of internal control over financial reporting;
7. (7) “Indemnification” means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowledge of misrepresentations made by the insurer or its representatives;
8. (8) “Independent board member” has the same meaning as described in 23 CAR § 12-113(d);

9. (9)

   1. (A) “Insurer” means a licensed insurer as defined in Arkansas Code § 23-60-102(2) or an authorized insurer as defined in Arkansas Code § 23-60-102(11).

   2. (B) For purposes of this rule, an insurer shall also mean:

      1. (i) Hospital and medical service corporations, as defined in Arkansas Code § 23-75-101; and
      2. (ii) Health maintenance organizations, as defined in Arkansas Code § 23-76-102(7);

10. (10) “Internal audit function” means a person, or persons, that provides independent, objective, and reasonable assurance designed to add value and improve an organization’s operations and accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of:

    1. (A) Risk management;
    2. (B) Control; and
    3. (C) Governance processes;

11. (11) “Internal control over financial reporting” means a process effectuated by an entity’s board of directors, management, and other personnel designed to provide reasonable assurance regarding the reliability of the financial statements, i.e., those items specified in 23 CAR § 12-104(b)(2) – (7) and includes those policies and procedures that:

    1. (A) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

    2. (B) Provide reasonable assurance that:

       1. (i) Transactions are recorded as necessary to permit preparation of the financial statements, i.e., those items specified in 23 CAR § 12-104(b)(2) – (7); and
       2. (ii) Receipts and expenditures are being made only in accordance with authorizations of management and directors; and
    3. (C) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements, i.e., those items specified in 23 CAR § 12-104(b)(2) – (7);
12. (12) “SEC” means the United States Securities and Exchange Commission;

13. (13) “SOX compliant entity” means an entity that either is required to be compliant with, or voluntarily is compliant with, all of the following provisions of the Sarbanes-Oxley Act of 2002:

    1. (A) The preapproval requirements of Section 201 (Section 10A(i) of the Securities Exchange Act of 1934);
    2. (B) The audit committee independence requirements of Section 301 (Section 10A(m)(3) of the Securities Exchange Act of 1934); and
    3. (C) The internal control over financial reporting requirements of SOX Section 404 (Item 308 of United States Securities and Exchange Commission Regulation S-K);
14. (14) “SOX Section 404” means Section 404 of the Sarbanes-Oxley Act of 2002 and the United States Securities and Exchange Commission’s rules and regulations promulgated thereunder;
15. (15) “SOX Section 404 report” means management’s report on “internal control over financial reporting” as defined by the United States Securities and Exchange Commission and the related attestation report of the independent certified public accountant as described in subdivision (1) of this section; and

16. (16)

    1. (A) “Workpapers” are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant’s audit of the financial statements of an insurer.
    2. (B) “Workpapers” may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, or commentaries prepared or obtained by the independent certified public accountant in the course of his or her audit of the financial statements of an insurer and which support the accountant’s opinion.

Codification Notes: "SOX" refers to the Sarbanes-Oxley Act of 2002, which was enacted as Pub. L. No. 107-204. The Securities Exchange Act of 1934 was enacted as Pub. L. No. 73-291. Item 308 of United States Securities and Exchange Commission Regulation S-K is codified at 17 C.F.R. § 229.308.