What Is Statutory Reporting? A Clear Definition

Statutory reporting is the legally required submission of financial and non-financial data to a government agency or regulatory body. These filings are mandated by law, or statute, and serve as a mechanism for regulators to monitor a company’s compliance and financial health. The purpose is to provide transparency and demonstrate solvency, which differs from general-purpose financial reports designed for investors.

The requirements for these reports are not uniform and change based on the company’s industry and the specific jurisdiction’s laws. For example, the reports for a publicly traded company differ from those for a private insurance company or a commercial bank. This mandated reporting ensures that entities are held accountable to legal standards, safeguarding the interests of stakeholders and the public.

Core Principles of Statutory Reporting

The foundation of statutory reporting is a specialized accounting framework known as Statutory Accounting Principles (SAP), designed to meet the unique needs of regulators. SAP is distinct from the more commonly known Generally Accepted Accounting Principles (GAAP), which governs financial reporting for most other business purposes. The two systems are built on different objectives.

The primary objective of GAAP is to provide a consistent view of a company’s financial performance for investors, focusing on the “going concern” concept that the business will operate indefinitely. In contrast, SAP’s objective is centered on solvency and liquidation value. Regulators, particularly in the insurance industry, use SAP-based reports to assess a company’s ability to meet its long-term obligations to customers, such as policyholders.

A defining feature of SAP is its treatment of assets, specifically the distinction between “admitted” and “non-admitted” assets. Under SAP, certain assets that may have value to an ongoing business, like office furniture and some accounts receivable, are considered non-admitted and valued at zero on the statutory balance sheet. This practice makes the SAP balance sheet a more conservative measure of a company’s ability to satisfy its liabilities from its most liquid assets.

This conservative approach extends to the recognition of income and expenses. SAP often requires companies to recognize expenses immediately, while the corresponding revenue may be deferred over a longer period. For instance, in the insurance industry, the costs associated with acquiring a new policy are expensed upfront under SAP, while the premium revenue is recognized over the life of the policy.

Common Types of Statutory Reports

Statutory reports take various forms depending on the industry and the governing regulatory body. For publicly traded companies in the United States, the Securities and Exchange Commission (SEC) mandates several statutory filings. The most prominent of these are the Form 10-K, an annual report providing a comprehensive overview of the company’s business and financial condition, and the Form 10-Q, a less detailed quarterly report.

The insurance industry provides a classic example of reporting based on Statutory Accounting Principles. Insurance companies are required to file an extensive “Annual Statement” with state insurance departments and the National Association of Insurance Commissioners (NAIC). This report focuses heavily on the insurer’s solvency, the adequacy of its reserves to pay future claims, and its risk-based capital.

In the banking sector, depository institutions must file Consolidated Reports of Condition and Income, commonly known as the “Call Report.” These reports are submitted quarterly to the Federal Financial Institutions Examination Council (FFIEC). The Call Report provides a detailed picture of a bank’s financial health, including its balance sheet, income statement, capital adequacy ratios, and the quality of its loan portfolio.

Information Required for Statutory Filings

Assembling a statutory filing requires a specific and highly detailed set of information that goes beyond standard financial reporting. The package is built around core financial statements prepared according to statutory rules, which are supported by extensive schedules and narrative disclosures.

The centerpiece of the filing is the statutory balance sheet, which separates assets into “admitted” and “non-admitted” categories. This is accompanied by a statutory statement of income, which reflects the conservative revenue and expense recognition rules of SAP. A third statement, the statement of capital and surplus, is of particular interest to regulators as it details the changes in the company’s net worth.

Beyond the main financial statements, statutory reports require numerous supporting schedules that provide granular detail on specific accounts. For an insurance company, this includes investment schedules that list every security owned, detailing its cost and market value. Other schedules might break down premiums by state and line of business.

Finally, the numbers are accompanied by narrative disclosures and footnotes that provide context. This can include a form of Management’s Discussion and Analysis (MD&A) that explains the financial results and condition of the company from management’s perspective.

The Statutory Reporting Process

Once financial data and narratives are prepared, the procedural phase of the statutory reporting process begins. This stage is a structured workflow designed to ensure accuracy and formally submit the completed package to the relevant regulatory authorities.

The first step is a rigorous internal review. The draft reports are scrutinized by the accounting department, senior management, and often an internal audit function to check for accuracy and compliance with all applicable statutory rules.

Following internal approval, many statutory reports must be accompanied by an opinion from an independent third party. For insurance companies, this means the annual statement must be audited by an independent certified public accountant. Additionally, an Appointed Actuary must submit a formal opinion on the adequacy of the company’s reserves.

The final step is the submission itself, which is almost universally handled electronically through specialized systems. Publicly traded companies file their reports with the SEC using the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. Insurance companies submit their annual statements through the NAIC’s electronic filing portal, and banks use the FFIEC’s electronic systems to file their Call Reports.