Following special points have be considered while doing the audit of an insurance company:
â€¢ Auditor first of all should study the relevant provisions of the insurance act governing the insurance company.
â€¢ Auditor should evaluate the internal control system of the entity. He should decide that up to what extent he can rely on this system.
â€¢ He should check the minutes of the meeting of the shareholders and of board of directors.
â€¢ He should check the documents relating to the securities deposited with the reserve bank of India.
â€¢ It should be ensured that in preparation of the annual accounts the rules and provision of the insurance act and companies act have been followed.
â€¢ The main source of income of an insurance company is the receipt of premiums from policyholders. Auditor should vouch these carefully.
â€¢ Outstanding premiums should be brought in to the books of account.
â€¢ Premiums received in advance should be taken to the balance sheet as an asset and should not be shown as income of the year.
â€¢ Other source of income may be rents, dividends and interest on investment. It should be checked carefully.
â€¢ The main expenditure of an insurance company company is the payment of claims on the policies. Auditor should check these very carefully.
â€¢ Claims admitted but not paid till the balance sheet date should be shown as a liability in the balance sheet.
â€¢ Other heads of expenditure should be checked with their respective vouchers.
â€¢ Auditor should check the assets and liabilities appearing at the date of the balance sheet. It should be verified that they are shown at the correct value. Proper depreciation must be provided for on the assets.
â€¢ Proper provision must be made for the unexpired risk on the policies, which may attract claims in future.