The Institute of Chartered Accountants has said that the collapse of the World Trade Centre has given rise to major uncertainties which auditors and the insurance industry will need to address when calculating potential losses.
The Institute's Insurance Industry Committee has issued guidance for auditors following the events of 11 September 2001.
The chairman of the Working Party which prepared the guidance, Tim Leggett, said: "The events of 11 September have had profound political, social and economic effects. Five months on we are only beginning to understand the full ramifications for the business community.
"These guidelines are intended to help the auditing profession reconcile the uncertainties thrown up by these events.
"In addition to the actual losses arising from the events of 11 September, a variety of indirect effects have arisen particularly in relation to reinsurance.
"For example, recoveries not directly affected by WTC losses may, nevertheless, be affected by difficulties in making full and timely recoveries from reinsurers which have incurred significant WTC losses."
The Institute said auditors, in particular, would need to familiarise themselves with the background of the WTC loss and its related uncertainties, including the potential for litigation.
Issues to consider should include:
The structure and security of the reinsurance programme; whether the reinsurance cover has been exhausted; whether the company has unlimited liability exposures particularly to the New York area; the extent to which policy limits indicate further substantial exposure; the impact of litigation.
Auditors of insurers may need to give consideration to any fundamental uncertainties which insurers have to contend with in drawing up the accounts.
Fundamental uncertainty arises when the magnitude of the potential impact of this uncertainty is so great that, without clear disclosure of the nature of the uncertainty, the view given by the financial statements would be seriously misleading.
