Each standard of actuarial practice (ASOP) contains definitions to help actuaries fully understand the ASOP’s guidance. Terms defined in one ASOP do not apply to other ASOPs, with one important exception: ASOP No. 1. The definitions in that ASOP, Introductory Actuarial Standard of Practice, “are intended to apply to all other ASOPs … unless the ASOP includes a specific definition of the term.” [1]
This means that it is important for you to have a good working understanding of the terms defined in ASOP No. 1, as they may be used differently in ASOPs from how they are commonly used.
Three of the most important terms defined in ASOP No. 1 are the modal verbs “must,” “should,” and “may,” which are used throughout the ASOPs. When you consider that ASOPs are binding upon actuaries and that failure to comply with an applicable ASOP results in a breach of the Code of Professional Conduct that may subject an actuary to the profession’s counseling and discipline process, [2] it becomes clear that you need to know exactly what these small words mean in the context of the ASOPs, because they can have huge professionalism implications.
“Must” and “should” are discussed together in ASOP No. 1. If an ASOP states that an actuary “must” do something, it means that the Actuarial Standards Board (ASB) “does not anticipate that the actuary will have any reasonable alternative but to follow a particular course of action.” [3] Because the ASOPs are “principles-based and do not attempt to dictate every step and decision in actuarial assignment,” [4] it should come as no surprise that the ASB rarely inserts “must” into ASOPs.
The use of the term “should” is far more common. ASOP No. 1 establishes that “should” indicates “what is normally the appropriate practice for an actuary to follow when rendering actuarial services.” [5]
ASOP No. 1 clarifies that “should” is intended to create space for the actuary to exercise professional judgment. Even where an ASOP states that an actuary “should” undertake a certain action, ASOP No. 1 recognizes that “[s]ituations may arise where the actuary applies professional judgment and concludes that complying with this practice would be inappropriate, given the nature and purpose of the assignment and the principal’s needs, or that under the circumstances it would not be reasonable or practical to follow the practice.” [6]
If you use your professional judgment and decide not to follow a course of action that an ASOP says you “must” or “should” do, you are responsible for explaining your actions. Failure to take an action that an ASOP says you “must” or “should” do “constitutes a deviation from the guidance of the ASOP.” ASOP No. 1 directs the actuary deviating from the guidance to ASOP No. 41, Actuarial Communications, which states that “the actuary can still comply with that ASOP by providing an appropriate statement in the actuarial communication with respect to the nature, rationale, and effect of such deviation.” [7] ASB Chairperson Maryellen Coggins summed up the professionalism implications of ASOP No. 1’s guidance in this way: “The ASOPs trust the judgment of qualified actuaries even as they require reasoned explanations for deviations from the standards.” [8]
ASOP No. 1 also provides specific guidance on the term “should consider,” which is commonly used in ASOPs to describe actions the actuary should think about doing. ASOP No. 1 clarifies that, if “after consideration, in the actuary’s professional judgment, an action is not appropriate, the action is not required and failure to take the action is not a deviation from guidance in the standard.”
The use of “may” in the standards is also discussed in ASOP No. 1, which notes that “may” is often used “when providing examples (for example, factors the actuary may consider; methods that may be appropriate).” [9] When “may” is used in an ASOP, the course of action described “is one that would be considered reasonable and appropriate in many circumstances,” but it “is not intended to indicate that a course of action is reasonable and appropriate in all circumstances, nor to imply that alternative courses of action are impermissible.” [10] The definition of “may” supports the overall objective of the ASOPs, which is “to provide the actuary with an analytical framework for exercising professional judgment, and identify the factors that the actuary typically should consider when rendering a particular type of actuarial service.” [11]
The ASOPs help to protect the public by defining what constitutes appropriate practice. Understanding the definitions and professionalism implications of “must,” “should,” and “may” in ASOP No. 1 will help you to satisfy all of standards of practice that apply to your work and, thereby, also help you to achieve this broader purpose.
(Featured in the August 2017 Actuarial Update.)
