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Submitted in the partial fulfillment of

requirement for qualifying

Master of Commerce

Part II (Accountancy)


Submitted by

Jayesh G. Shirodkar

Roll No.35

Project Guide : Prof.Mr.Sachin Bhandarkar

Vivekanand Education Society’s College of Art’s,
Science & Commerce

Sindhi Society,Chembur, Mumbai – 400 071

For Academic Year (2015-2016)


This is to certify that the project on Audit of Insurance

company in parital fulfillment fot the award of Master of

Commerce Part-II (Accountancy) University of Mumbai under

the guidance of Prof.Mr.Sachin Bhandarkar is her

original work and does notform any part of the project

undertaken previously.Also it’s certified that the project

represents the original work on the part of the candidate

College Seal


Dr.Mrs. J.K .Phadnis

Internal Examiner External Exmainer

Prof.Mr.Sachin Bhandarkar


With immense please I presented ‘Audit on Insurance

Company’ project report on the currirculum of Master of

Commerce Part II(Accountancy). I wish to thank all the

people who have extended their support & guidance for

making this project an enriching experience for me.

I would like to express my sincere gratitude towards

our project guide Prof.Mr.Sachin Bhandarkar for giving

proper direction & helping at every stage of my project

.Her timely co-operation & valuable suggestions helped

me to understand the subjects well & undertake the study

in fulfilling manner


Sachin Bhandarkar is parital fulfilled for the award of Master of CommercePart II (Accoutancy) University of Mumbai is my original work and does not from any part of the projects undertalen previously 4 .Mr. DECLARATION I undersigned hereby declare that the project report entitled‘Audit on Insurance Company’ submitted by me under the guidance Prof.

C 14 Bibliogarphy 5 .I.C 13 Conclusion & Suggestion of L.I. Table of Contents 1 Introduction 2 Objectives of Auditing 3 Advantages of Auditing 4 Disadvantages of Auditing 5 Qualifications & Disqualifications of Auditors 6 Appointment of Auditor 7 Stages of Audit 8 Types of Audit 9 Introduction of Insurance Audit 10 Appointment of Auditor in Insurance Companies 11 Audit Procedures 12 L.

hence foremost attention should be paid to the treasury”. The company’s act of 1956 gives regulations regarding the audit work. INTRODUCTION OF AUDITING. accounts and vouchers of a business’s shall enable the auditor to satisfy himself whether or not the balance sheet is properly drawn up so as to exhibit a true and correct view of the state of affairs of the business according to his best of the information given to him and as shown by the book. Meaning of Audit: The word audit is derived from the Latin word “AUDIRE” which means to hear.” The international auditing practices committee defines auditing as “the independent examination of financial information of any entity whether profit oriented or not and irrespective of size/legal form when such an examination is conducted with a view to express an opinion thereon”. Today most of the economic activities are largely conducted through public finance. The scope of audit encompasses verification of accounts with a intention of giving opinion on its reliability. Auditing as it exists today can be associated with the emerging a joint stock company during the industrial revolution. Scope of Audit. The auditor has to see whether these larger funds are properly used. Initially auditor was a person appointed by the owners to check account whenever the suspected fraud. The emphasis now is clearly on the verification of accounting date with a view on the reliability of accounting statement. social audit etc. Mautz: defines auditing as being “Concerned with the verification of accounting data with determining the accuracy and reliability of accounting statements and reports. management audit. The scope of audit is increasing with the increase in the complexities of the busines. The practice of auditing existed even in the Vedic period. 6 . in this regard its said that “an auditor is a watch dog but not a blood hound”. Definition: Spicer and Peglar define auditing as “An examination of the books. Kautaly in his book “arthshastra” has stated that “all undertakings depend on finance. He has no power to take action against anybody. Hence it covers cost audit. It is said that long range objectives of an audit should be to serve as a guide to the management future decisions. Greeks and Roman used to get this public account scrutinized by and independent official. Historical records show that Egyptians. It should be remembered that an auditor just expressed his opinion on the authenticity of the account. Emergence of joint stock companies changed the approach of auditing as ownership was pestered from management. he was to hear explanation given by the person responsible for financial transactions.

Eg: if the amount is wrongly debited by Rs 100 less and Wrongly Credited by Rs 100 such a mistake is known as compensating error. The auditor is also concerned with verifying how far the accounting system is successful in correctly recording transactions. he reports to the shareholders who are the owners of the company and not tot the director. The primary objective of an auditor is to respect to the owners of his business expressing his opinion whether account exhibits true and fair view of the state of affairs of the business. Auditors are basically concerned with verifying whether the account exhibit true and fair view of the business. negligence etc. 7 . he may discover the errors in the accounts. Compensating Errors: when two/more mistakes are committed which counter balances each other. carry forwards etc such errors can be located while verifying. Detection and prevention of errors: errors are mistakes committed unintentionally because of ignorance. These arise mainly due to the lack of knowledge of accounting. Location of Errors: It is not the duty of the auditor to identify the errors but in the process of verifying accounts. Secondary Objective: The following objectives are incidental to the main objective of audting. The auditor should follow the following procedure in this regard. carelessness. It should be remembered that in case of a company. Errors of Commission: When incorrect entries are made in the books of accounts either wholly. He had to see whether accounts are prepared in accordance with recognized accounting policies and practices and as per statutory requirements. wrong Calculations. postings. Compare the names of account appearing in the ledger with the names of accounting in the trial balance. Eg: Revenue expenditure may be treated as Capital Expenditure. Error of Principle: These are the errors committed by not properly following the accounting principles. carelessness. Such an error is know an Compensating Error. Check the totals and balances of all accounts and see that they have been properly shown in the trial balance. Check the trial balance. The objectives of auditing depends upon the purpose of his appointment.OBJECTIVES OF AUDITING. If a transaction has been totally omitted it will not affect trial balance and hence it is more difficult to detect. Clerical Errors. Primary Objective. the trial balance will not agree and hence it can be easily detected. Compare list of debtors and creditors with the trial balance. A clerical error is one which arises on account of ignorance. On the other hand if a transaction is partially recorded. Errors are of many types: Errors of Omission: These are the errors which arise on account of transaction into being recorded in the books of accounts either wholly partially. Eg: wrong entries. partially such errors are known as errors of commission.

Such a fraud is known as “Teaming and Lading”. Such a fraud can be deducted by checking stock records and physical verification of goods. to increase the share price etc. Manipulation of Accounts: this is finalizing accounts with the intention of misleading others. vouchers. it is not the main objective of the auditor to discover frauds and irregularities. When the 3rd customer pays it goes forever. The objective of WD may be to evade tax. to conclude it cab be said that. Cash received from 1st customer is misused when the 2nd customer pays it is transferred to the 1st customer’s account. But if he finds anything of a suspicious nature. 8 . he should probel it to the full. Misappropriation of Goods: here records may be made for the goods not purchase not issued to production department. It is very difficult to locate because its usually committed by higher level management such as directors.Deduction and Prevention of Fraud: A fraud is an Error committed intentionally to deceive/ to mislead/ to conceal the truth/ the material fact. goods may be used for personal purpose. invoices etc. The cashier may show more expenses than what is actually incurred and misuse the extra cash. This kind of fraud is either by showing more payments/ less receipt. To prevent such frauds the auditor must check in detail all books and documents. to borrow money from bank. Frauds may be of 3 types:- Misappropriation of Cash: This is one of the majored frauds in any organisation it normally occurs in the cash department. He is not an insurance against frauds and errors. This is also known as “WINDOWS DRESSING”. Not allowing discounts to customers. Cash can also be misappropriated by showing less receipts Eg: not recording cash sales. The cashier may also misappropriate the cash when it is received. Eg: showing wages to dummy workers.

For taxation purpose auditing of account is amust. An auditor acts as a trustee of his shareholders. absorption. Deterrent to Inefficiency and Fraud: When employees know that an independent audit is to be made. and workers. In case of any claim is to be made from the insurance company only audited account should be submitted. creditors. reconstruction etc. they take care to make fewer errors in performing the accounting function and are less likely to misappropriate company assets.ADVANTAGES OF AUDIT: Audited account are detected as an authentic record of transaction. Without audits. They are useful to secure loan at the of amalgamation. Even in case of partnership firm auditing of accounts helps in the settlement of claim at the time of retirement/death of a partner. Control and Operational Improvements: The independent auditor can often make suggestions to improve controls and achieve greater operating efficiencies within the client’s organization. Auditor account helps in managerial decisions. companies would be denied access to these capital markets. Auditing safeguards the interest of owners. payment of dividend etc. and investors may be willing to accept a lower rate of return on their investment. Advantages of auditing are as follows:- Access to Capital Market: Public limited companies must satisfy audit requirements under the Securities and Exchange Commission in order to register securities and have them traded in the securities markets. It increases the morale of the staff and thus it prevents frauds and errors. Errors and frauds are detected and rectified. investors. creditors may offer lower interest rates. Because of his expertise the auditor may advise on various matters to his clients. 9 . Hence he safeguards their financial interest. Lower Cost of Capital: Because of the reduced information risk associated with audited financial statements. It is useful to take certain financial decisions like issuing of shares.

Assurance providers rely on the responsible party and its staff to provide correct information. It does not take into account the productivity and the skills of the employees of the business. about what aspects of the subject matter are the most important. The client’s staff members may collude in fraud that can then be deliberately hidden from the auditor or misrepresent matters to them for the same purpose. Assurance can never be absolute. which in some cases may be impossible to verify by other means. Investment may be discouraged by a bad auditing 10 . Assurance providers will never give a certification of absolute correctness due to the limitations set out below: Testing is used – the auditors do not oversee the process of building the financial statements from start to finish. how much evidence to obtain etc. The nature of the assurance report might itself be limiting. Some items in the subject matter may be estimates and are therefore uncertain. The accounting systems on which assurance providers may place a degree of reliance also have inherent limitations. Assurance provision can be subjective and professional judgments have to be made. For example. It is impossible to conclude absolutely that judgmental estimates are correct. Most audit evidence is persuasive rather than conclusive. Assurance providers may sometime not test the entire item in the every subject matter.LIMITATIONS/DISADVANTAGES OF AUDITING The main issue for accountants is there are some certain limitations to assurance services and for that reason there is always a risk involved that the wrong conclusion will be drawn. hiring a firm to carry out an audit can be costly. as every judgment and conclusion the assurance provider has drawn cannot be included in it. For smaller companies.

or its subsidiary. e) A person or a firm who (whether directly or indirectly) has business relationship with the company. of an officer or employee of the company. Disqualifications of an Auditor: According to Provisions of Section 141(3) of the Companies Act. 1949 and holds a valid Certificate of Practice. or its holding or associate company or subsidiary of such holding company or associate company. 2013 “a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant within the meaning of Chartered Accountants Act. d) A person who or his relative or partner (i) Is holding any security/interest in the company or its subsidiary or of its holding or associate company or subsidiary of such holding company. It has been further provided that the firm shall also considered to appointed by its firm name whereof majority of partners practising in India are qualified for appointment as auditor of a company. 1949 and holding valid certificate of practice and acting in capacity as a) Individual b) Partnership Firm c) Limited Liability partnershipIt has been further provided that only partners who are Chartered Accountants will be authorised to sign on behalf of the firm.According to Provisions of Section 141(2) of the Companies Act. in excess of Rs. c) A person who is partner or who in the employment. or its holding or associate company or subsidiary of such holding company. following persons shall not be eligible as auditor of the company: ‐ a) A body corporate other than LLP registered under the LLP Act. (ii) Is indebted to the company or its subsidiary. or its holding or associate company or a subsidiary of such holding company for value in excess of Rs. a firm including limited liability partnership who are chartered accountants shall be authorised to act as auditor and sign on behalf of the such limited liability partnership or firm. 5 lacs rupees (iii) Has given guarantee or provide any security in connection with the in debtness of any third person to the company or its subsidiary. 2013 . 2008 b) An officer or employee of the company. 11 . A person shall appointed as an auditor if he is chartered accountant within the meaning of Chartered Accountants Act. It has been further provided that an relative may hold security or interest in the company of face value not exceeding one lac rupees.QUALIFICATION & DISQUALIFICATION OF AN AUDITORS Qualifications of an auditor: According to Provisions of Section 141(1) of the Companies Act. 1 lacs. 2013.

Explanation. shall comply with the requirements of this sub-section within three years from the date of commencement of this Act: Provided also that. shall be appointed as auditor of the same company for a period of five years: Provided also that every company. shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term: Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm. the written consent of the auditor to such appointment. 12 . shall appoint or re-appoint— (a) an individual as auditor for more than one term of five consecutive years. (ii) an audit firm which has completed its term under clause (b). whose tenure has expired in a company immediately preceding the financial year. appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the members of the company at such meeting shall be such as may be prescribed: Provided that the company shall place the matter relating to such appointment for ratification by members at every annual general meeting: Provided further that before such appointment is made. (2) No listed company or a company belonging to such class or classes of companies as may be prescribed.Appointment of auditors (1) Subject to the provisions of this Chapter. and also file a notice of such appointment with the Registrar within fifteen days of the meeting in which the auditor is appointed. and a certificate from him or it that the appointment. existing on or before the commencement of this Act which is required to comply with provisions of this sub-section. and (b) an audit firm as auditor for more than two terms of five consecutive years: Provided that— (i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term. shall be in accordance with the conditions as may be prescribed.—For the purposes of this Chapter. every company shall. at the first annual general meeting. nothing contained in this sub-section shall prejudice the right of the company to remove an auditor or the right of the auditor to resign from such office of the company. if made. shall be obtained from the auditor: Provided also that the certificate shall also indicate whether the auditor satisfies the criteria provided in section 141: Provided also that the company shall inform the auditor concerned of his or its appointment. “appointment” includes reappointment.

or partly by the Central Government and partly by one or more State Governments. appoint an auditor duly qualified to be appointed as an auditor of companies under this Act. or by any State Government. in the case of a Government company or any other company owned or controlled. 13 . the first auditor of a company. in the case of a Government company or any other company owned or controlled. but if such casual vacancy is as a result of the resignation of an auditor. by rules. other than a Government company. such appointment shall also be approved by the company at a general meeting convened within three months of the recommendation of the Board and he shall hold the office till the conclusion of the next annual general meeting. directly or indirectly. by the Central Government. in respect of a financial year. by the Central Government. shall be appointed by the Board of Directors within thirty days from the date of registration of the company and in the case of failure of the Board to appoint such auditor. (4) The Central Government may. the Comptroller and Auditor-General of India shall. the auditing partner and his team shall be rotated at such intervals as may be resolved by members. the word “firm” shall include a limited liability partnership incorporated under the Limited Liability Partnership Act. (8) Any casual vacancy in the office of an auditor shall— (i) in the case of a company other than a company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India. it shall inform the members of the company who shall appoint such auditor within the sixty days at an extraordinary general meeting. members of a company may resolve to provide that— (a) in the audit firm appointed by it. the Board of Directors of the company shall appoint such auditor within the next thirty days. the first auditor shall be appointed by the Comptroller and Auditor-General of India within sixty days from the date of registration of the company and in case the Comptroller and Auditor-General of India does not appoint such auditor within the said period. (7) Notwithstanding anything contained in sub-section (1) or sub-section (5). or Governments. or (b) the audit shall be conducted by more than one auditor. or by any State Government or Governments. who shall hold office till the conclusion of the first annual general meeting. and in the case of failure of the Board to appoint such auditor within the next thirty days. directly or indirectly. or partly by the Central Government and partly by one or more State Governments. 2008.(3) Subject to the provisions of this Act. (6) Notwithstanding anything contained in sub-section (1). prescribe the manner in which the companies shall rotate their auditors in pursuance of sub-section (2). Explanation. it shall inform the members of the company. be filled by the Board of Directors within thirty days. (5) Notwithstanding anything contained in sub-section (1).—For the purposes of this Chapter. who shall within ninety days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting. within a period of one hundred and eighty days from the commencement of the financial year. who shall hold office till the conclusion of the annual general meeting.

(11) Where a company is required to constitute an Audit Committee under section 177. including the filling of a casual vacancy of an auditor under this section shall be made after taking into account the recommendations of such committee. if— (a) he is not disqualified for re-appointment. be filled by the Comptroller and Auditor-General of India within thirty days: Provided that in case the Comptroller and Auditor-General of India does not fill the vacancy within the said period. the Board of Directors shall fill the vacancy within next thirty days. the existing auditor shall continue to be the auditor of the company. no auditor is appointed or re-appointed. (9) Subject to the provisions of sub-section (1) and the rules made thereunder. a retiring auditor may be re-appointed at an annual general meeting. (b) he has not given the company a notice in writing of his unwillingness to be re-appointed. all appointments. and (c) a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed.(ii) in the case of a company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India. (10) Where at any annual general meeting. 14 .

Setting these standards requires judgment discussion and consensus with other members of the audit team.Making Improvements From the final reports recommendations. Stage 5 . Optimum standards represent the standard of care most likely to be achieved under normal conditions of practice. Stage 4 . Criteria can be defined from recent medical literature or the best experience of clinical practice. below or staying similar to the identified standards. Stage 2 . Stage 1 . etc for implementation. All patients on Warfarin should have their INR within the recommended limits.the lowest acceptable performance standard.Measuring Performance Following data analysis areas falling below the predetermined standards can be identified.Selecting Criteria The criterion should be written as a statement. coroner’s cases or national practice that people know or feel practice could be improved upon. for example: 1. creating a climate for change. The level of standard can often be controversial but there are basically 3 options: A minimum standard .A Standard should be defined in order to make it useful. There are three main areas which are. such as:98% of patients requesting urgent appointments will be seen the same dayOr90% of patients with epilepsy should be seen at least once a year. Stage 3 . engaging and enabling the whole organisation and finally implementing and sustaining change. All patients with epilepsy should be seen at least once a year. is usually unattainable.Preparing for audit The reason for undertaking the audit may arise from a problem may be identified from every day practice. key recommendations should be arranged into an action plan and given to the appropriate stakeholders such as Directors.Sustaining Improvement & Re-Audit Without re-auditing it is impossible to see if implemented recommendations have lead to an improved level of care. 2. This can be used to distinguish between acceptable and unacceptable practice. An optimum standard -lies between the minimum and the ideal. The audit cycle gives a clear checklist of the components required to undertake an audit project successfully and is similar to that of the change management models like Kotter’s eight step model (1996). with performance either falling above.The 5 Stages of Audit Each stage of clinical audit involves the use of specific methods. An ideal standard . All patients requesting an urgent appointment will be seen that day. 15 . 3. This however. Professionals Managers.the care that should be given under ideal conditions and with no constraints. It should describe the level of care to be achieved for any particular criteria. however it also requires the creation of a supportive environment. Co-Directors.

perform this type of review. CSULB's Director of Financial Reporting coordinates the work of these auditors on our campus. an operating system. maintenance. Operational Audit A future-oriented.TYPES OF AUDIT AND REVIEWS Financial Audits or Reviews Operational Audits Department Reviews Information Systems Audits Integrated Audits Investigative Audits or Reviews Follow-up Audits Financial Audit A historically oriented. 16 . This would involve an examination of the controls over the input. compliance with related laws. to evaluate the adequacy of controls. safeguarding of assets. program and data security. and output of system data. and security of application systems in a particular environment. This type of audit might involve reviewing a data center. Information Systems (IS) Audit There are three basic kinds of IS Audits that may be performed: General Controls Review A review of the controls which govern the development. or processes and procedures (such as the procedure for controlling production program changes). operation. processing. systematic. independent evaluation performed for the purpose of attesting to the fairness. Financial data may be used. a security software tool. CSULB's external auditors. but the primary sources of evidence are the operational policies and achievements related to organizational objectives. Department Review A current period analysis of administrative functions. and reliability of financial data. regulations and University policy and integrity of financial information. accuracy. and data quality issues are also considered. efficient use of resources. KPMG. etc. Application Controls Review A review of controls for a specific application system. Data communications issues. Internal controls and efficiencies may be evaluated during this type of review. and independent evaluation of organizational activities. system change control.

the results of the follow-up may be reported to those external auditors. Follow-up Audit These are audits conducted approximately six months after an internal or external audit report has been issued. In addition. 17 . particularly if a new operating environment or technical platform will be used. EMPLOYERS’ seasoned and knowledgeable in-housepremium audit staff is available to answer your premium audit questions and help you navigate the myriad of workers’ compensation classifications to assist you in accurately classifying your employees. This type of review allows for a very comprehensive examination of a functional operation within the University. audit services and audit processes to make them easier to use and complete. Integrated Audit This is a combination of an operational audit. System Development Review A review of the development of a new application system. department review. They are designed to evaluate corrective action that has been taken on the audit issues reported in the original report. Her direct number is 562-985-4818. It is usually focused on specific aspects of the work of a department or individual. and IS audit application controls review. we’ve revamped our worksheets. Investigative Audit This is an audit that takes place as a result of a report of unusual or suspicious activity on the part of an individual or a department. Consideration is also given to the general controls over a new application. This involves an evaluation of the development process as well as the product. All members of the campus community are invited to report suspicions of improper activity to the Director of Internal Auditing Services on a confidential basis. Premium Audit We understand that the premium audit process can be complex. When these follow-up audits are done on external auditors' reports.

How often will an audit be done? It depends on the type of work you do and the size of the annual premium for the policy to be audited. etc.) to be incurred during the policy period. units. Telephone Audit: We'll call you or send you a letter. When will the audit be done? Within 90 days after the expiration date of the policy period so that any premium adjustments may be processed into your premium billing cycle.Types of Premium Audits Your West Bend commercial insurance policy will qualify for one of four audit types: Mail Audit: An audit form will be mailed to you to complete. Why is an audit necessary? Premiums for workers’ compensation insurance and for general liability insurance are calculated based on estimates of exposure (payroll. receipts. 18 . The auditor will notify you by mail or telephone shortly after the policy expiration date to schedule a convenient date for the audit. sales. Adjustments will be made to the premium based on the actual information. Hybrid Audit: The insured will be contacted via appointment letter or by phone to provide verification documentation to the auditor by fax or email. The documentation is then reviewed by the auditor and verbally discussed over the phone with the insured. On Site Audit: We'll call you or send you a letter to schedule a time to meet in person with a premium auditor. but some policies may be audited every third year. a policy is audited every year. Generally. An audit is conducted at the conclusion of the policy period to determine the actual payroll and receipts incurred during the policy term. The phone auditor will walk you through the audit process.

Policyholders have placed their trust in us through two world wars.INTRODUCTION OF INSURANCE AUDIT The insurance audit is a process common to the insurance industry. Insurance Audit has provided valuable guidance to its clients since 1901. This information is not used by federal. our mission has been to provide objective. receipts or sales. state or local government to calculate taxes. shipwrecks and other natural and man-made catastrophes -. From the beginning. An accurate audit is a benefit to you and your business and could save you time and money. Insurance Audit was the first insurance consulting firm of its kind and the concept of an insurance advisor that does not sell insurance caught on quickly. Insurance Audit might never have come into existence. a stock market crash. unbiased advice to buyers of property and casualty insurance and risk-financing products and services. five regional wars. We intend audit information to be kept confidential. Today. prevented losses. we have been there to provide expert counsel and support. We do not sell insurance. Consider that in its historical context. What Is Insurance Audit? The insurance audit is a process common to the insurance industry. In fact. earthquakes. An accurate audit is a benefit to you and your business and could save you time and money. droughts. mudslides. eighteen presidential administrations. records and books of account to discover your actual insurance exposure for a specific period of time coverage was provided. explosions. What is an audit? An audit is an examination of your operation. In 1945. and reduced premiums all at the same time. tornadoes. 19 . the Wall Street Journal ran a front page article on Insurance Audit describing how it improved its clients’ insurance coverages. one cold war. the Great Depression. “Exposure” means your payroll. number of employees or contract cost. if insurance companies were always straight-forward and fair with policyholders. From then to now. We believe that such advice should never come solely from someone who is paid by insurance companies to advance their interests. whenever and wherever our clients have needed us. 2001. September 11. Punctuating those landmarks were the countless fires. floods. We perform an audit to ensure you have paid no more than the appropriate premium for your exposure. and Hurricane Katrina. units. several recessions. we approach each client with that same kind of objective – to develop and maintain a risk-financing structure that provides an optimal combination of superior protection and competitive cost. strikes.many known or remembered only by those upon whom they were visited. The audit is done to obtain insurance rating information only. We perform an audit to ensure you have paid no more than the appropriate premium for your exposure.

audit firm may accept statutory audit of any other insurance company subject to the compliance of maximum two statutory audits. in respect of an insurance company should not accept statutory audit assignment of that Insurance company in the next two years. 4) In both the cases mentioned in 3 (a) and 3(b) above at least one partner or paid Chartered Accountant of the firm should have CISA/ISA or any other equivalent qualification. There will be a cooling period of two years. the maximum duration for which the auditor could be retained would be for a period of 5 years. either partners or as employees. 3) (a) It should have (i) a minimum of five partners of whom atleast two should have been in practice as partners in an audit firm for a minimum period of 10 years and (ii) atleast two other partners have been in continuous practice in the audit firm as their partner or had been in employment earlier with that firm for a minimum period of five years . had been in continuous partnership/employment with the audit firm for a minimum period of five years and (iii) At least two partners of the firm shall be Fellow members of the Institute and had been in continuous practice for five years after enrolment as Fellows. 2) The firm should have been established and has been in continuous practice for a period of 15 years or more. 3.Maximum Number of Statutory Audits in Insurance Industry at a time : One Audit firm would not be permitted to carry out more than two Statutory Audits of Insurance Companies (Life/Nonlife/Reinsurer).Rotation of Joint Auditors: 1) Each insurance company will have two auditors on a joint audit. 2) One of the Joint Auditor may have a term of 5 years and the other 4 years in the first instance. (i) it could be a firm which has atleast seven Chartered Accountants including not less than two as partners who have been in continuous practice as partners in the firm for a minimum period of 10 years and (ii) atleast three Chartered Accountants. However. 20 .APPOINTMENT OF AUDITORS IN INSURANCE COMPANIES 1-Eligibility Conditions : 1) Auditor of an Insurance company shall be a firm . 4) It is clarified that cooling period is applicable in respect of audit firms that completes a term of five/four years as the case may be as on 31st March 2006. Thereafter. An audit firm which completes a tenure of five/four years as the case may be. 2. at the first instance. 3) (b) Alternatively.

The audit adjustment usually takes place between 30 and 60 days following expiration. The insurance company will send one of their employees to review your books to obtain this information. bonuses. It may result in premium savings. Telephone audits are not as desirable since there is no "paper trail" available to correct errors. In addition. severance pay. freight charges if billed separately. though occasionally you will receive a form to complete and return. You may exclude the overtime amount if your books are set up to distinctly show overtime apart from regular wages. and piece work.400. which are rated on the total number of beds. There are a few areas which may be excluded from gross sales: sales or excise taxes which are collected and submitted to a governmental division. The insurance company charges a deposit premium. or fees. Gross sales includes the entire amount charged for all goods sold or distributed. total cost. rentals. officer restrictions. outside salespersons. This may be invaluable when checking the audit results. Most insurers will limit ratable payroll for officers to $27. and are subject to annual adjustment following the policy expiration. General Liability The most common rating basis is payroll. followed by gross sales. 21 . etc. and drafters. request a copy of the auditor's handwritten worksheet. etc. and the premium adjustment may be either an additional premium or a refund for over-estimating the rating basis. The premium adjustment endorsement will be sent to your agent. Your copy of the audit results will be mailed with premium adjustments about four weeks following the audit. or contract cost. Unlike Workers Compensation. such as hospitals. group insurance premiums. area. Some rating bases are unique to the class.000. and royalty income from patent rights or copyright income. services provided. installment finance charges. Rates are normally applied per $1. drivers. Your Commercial Insurance Policy is pre-paid. as this information is considered confidential. Be sure to ask many questions of the auditor relating to special payroll limitations. This is the most equitable method of obtaining a fair premium for exposure to risk. dues. the following may be excluded from ratable payroll-tips. Payroll includes all remuneration such as commissions. Your insurance company is not allowed to provide anyone else with copies of your audit results. but may be admissions. gross sales. clerical office employees.Insurance Company Audit Procedures Many commercial insurance policy premiums are rated on a variable basis such as payroll.

Most insurers will charge a deposit premium based on 75% of the policy limit. Note that even though you may report values exceeding the policy limit. bonuses. you do not have coverage unless the policy is changed. however. Property The most common adjustable property coverage is property subject to monthly reporting. a continuous record of vehicles must be maintained. An independent contractor is a sub-contractor who has a specific job to do according to his agreement with the general contractor.300 per week for ratemaking purposes. Sole proprietors and partners may be limited to $22. Also. be aware that those persons holding 25% or more ownership may eliminate themselves from coverage.Independent Contractors Coverage Independent Contractors Coverage provides only for your secondary liability caused by an independent contractor. tips. however. most are not. Contractual Liability Contractual Liability is assumed by you under contract. The basis of premium for Independent Contractors Coverage is the total cost to you for all work let or sublet in construction. You may not divide payroll for those employees working several jobs. amount of purchase. Workers Compensation Be certain to place an employee's entire payroll in the proper classification. They must be assigned the highest rated category. This amount varies each year. including items such as wages. be charged for this additional report even though you do not have the coverage. and usage. Automobile Some auto policies are subject to annual adjustment. The basis of premium for Contractual Liability is the total cost of work designated by each contract. 22 . Work with the auditor or your agent for proper job classifications to avoid unnecessary premium expense.200. For proper credit. Payroll means total remuneration whether in money or a money substitute. but who exercises control over his part of the job. Executive officers may be limited to $1. etc. Be sure to obtain Certificates of Insurance from all independent contractors and have them readily available for the auditor. Ask your agent for more details. the average reported values are then calculated and the provisional premium is adjusted. Following expiration. commissions. listing date of acquisition/sale. You could. so be sure to check the current limitation amount. profit sharing.

Cash disbursements journal with monthly totals disbursed to various accounts. and casual labor Cash receipts in sales journal totaled by the month and assigned to various categories. Courts will require payment from your insurer for injuries if the subcontractor has no insurance.Ratable payroll does not include overtime wages. but subcontractors are not. depending on the program. The following are the best sources of information for a premium audit: Payroll journal providing monthly totals and division of payroll by type of work performed Individual earnings records. or ownership tax receipts Certificates of insurance indicating coverage for subcontractors Data processing printouts or computerized records differ widely in their value to the auditor. You must demonstrate evidence (such as a Certificate of Insurance) that all subcontractors who worked for you during the policy term carried workers compensation insurance for this exemption to apply. Record Keeping Hints The auditor will be happy to assist you in developing methods of compiling the necessary information best suited to your specific business. registrations. Gross payroll and overtime should be totaled by the month and quarter. all direct payroll is subject to audit. Vehicle titles. Furthermore. subcontractors. indicating the type of work performed. Your books must clearly list overtime to apply. 23 . including materials. The date hired and/or terminated should be indicated.

Surendranath Tagore (son of Satyendranath Tagore) had founded [3] Hindusthan Insurance Society. was established in Calcutta in 1818 by Bipin Behari Dasgupta and others. Other insurance companies established in the pre-independence era included Postal Life Insurance (PLI) was introduced on 1 February 1884 Bharat Insurance Company (1896) United India (1906) National Indian (1906) National Insurance (1906) Co-operative Assurance (1906) Hindustan Co-operatives (1907) Indian Mercantile General Assurance Swadeshi Life (later Bombay Life) Sahyadri Insurance (Merged into LIC. The Bombay Mutual Life Assurance Society. 1986) 24 . which later became Life Insurance Corporation.14 crore with total value of policies sold of 367. Over 245 insurance companies and provident societies were merged to create the state owned Life Insurance Corporation.82 lakh that year The company was founded in 1956 when the Parliament of India passed the Life Insurance of India Act that nationalised the private insurance industry in India. Its primary target market was the Europeans based in India. formed in 1870. the first company in India offering life insurance coverage. was the first native insurance provider. History Founding organisations The Oriental Life Insurance Company. It is the largest insurance company in India with an estimated asset value of₹1560482 crore (US$240 billion).Life Insurance Corporation of India Life Insurance Corporation of India (LIC) is an Indian state-owned insurance group and investment company headquartered in Mumbai. and it charged Indians heftier premiums. As [2] of 2013 it had total life fund of Rs.1433103.

The first 150 years were marked mostly by turbulent economic conditions. 25 . created huge surpluses. Ramkrishna Dalmia. the Life Insurance Corporation of India.28% matching the growth of the life insurance industry and also outperforming general economic growth. which started its business with around 300 offices. albeit on a base substantially higher than the private sector. including life insurance. this consisted of 154 life insurance companies. 1956 creating the Life Insurance Corporation of India. Nationalisation in 1955 In 1955. The Corporation. 5. India's First War of Independence. It consolidated the life insurance business of 245 private life insurers and other entities offering life insurance services.000 servicing around 350 million policies and [5] a corpus of over ₹800000 crore (US$120 billion) by the end of the 20th century. adverse effects of the World War- I and World War II on the economy of India. had grown to 25. The first half of the 20th century also saw a heightened struggle forIndia's independence.7 million policies and a corpus of INR 45. 16 foreign companies and 75 provident companies. Ironically. Eventually.9 crores (US$92 million as per the 1959 exchange rate of roughly ₹5 for US$1). one of India's wealthiest businessmen. which started operating in September of that year. In 2013 the First Year Premium compound annual growth rate (CAGR) was 24. It witnessed. and in between them the period of world wide economic crises triggered by the Great depression. which had created a policy framework for extending state control over at least seventeen sectors of the economy. The nationalisation of the life insurance business in India was a result of the Industrial Policy Resolution of 1956. LIC emerged as a beneficiary from this process with robust performance. was sent to prison for two years. The aggregate effect of these events led to a high rate of and liquidation of life insurance companies in India. the Parliament of India passed the Life Insurance of India Act on June 19. This had adversely affected the faith of the general public in the utility of obtaining life cover.53% while Total Life Premium CAGR was 19. Liberalisation post 2000s In August 2000. Growth as a monoply From its creation. the Indian Government embarked on a program to liberalise the Insurance Sector and opened it up for the private sector. which commanded amonopoly of soliciting and selling life insurance in India. parliamentarian Amol Barate raised the matter of insurance fraud by owners of private insurance agencies. In the ensuing investigations. owner of the Times of India newspaper. and by 2006 was contributing around 7% of India's GDP.

the LIC has 8 zonal offices. 2.347 17. of Women Class-I Officers 31.048 branches and 992 satellite offices and corporate offices. 89 Referral Agents.388 24. 6 Most Trusted Service Brand of India.65%).542 Total 1. 242 Corporate Agents. This is derived from ancient Hindu text.420 6.337. Category of employees Total Number No.867 were women ( according to the Brand Trust Report.033 Class III/IV employees 62. Voted India's Most Trusted brand in the BFSI category according to the Brand Trust Report for 4 continuous years .SLOGAN OF LIC LIC's slogan yogakshemam vahamyaha is in Sanskrit language which translates in English as "Your welfare is our responsibility". pension plans.621 1. around 109 divisional offices.064 individual agents. unit-linked plans. [7] Operations Today. out of which 24. special plans and group schemes. LIC has been continuously winning the Readers' Digest Trusted brand award.292 Development Officers 26. The slogan can be seen in the logo. 22nd verse. LIC had 1.867 26 . the Bhagavad Gita's 9th chapter. It also has a network of 1. 98 Brokers and 42 Banks for soliciting life insurance business from the public. it also has 54 customer zones and 25 metro-area [1] service hubs located in different cities and towns of India.388 employees. PRODUCTS AND SERVICES LIC offers a variety of insurance products to its customers such as insurance plans. [8] written in Devanagari script. [9] From the year 2006. [10] Employees and agents As on 31 March 2014. Awards and recognitions The Economic Times Brand Equity Survey 2012 rated LIC as the No.

Among the Nifty companies.Agency strength LIC had 11. Kotak Mahindra Bank and HCL Technologies. but it lowered its holding in a total of 27 Nifty companies during the quarter. this award is given to the meritorious students in standard XII of school education or equivalent. Hindustan Unilever. Power Grid Corp. ICICI Bank.058 crore).000 crore during the quarter shows the analysis of changes in their shareholding patterns. On the other hand.Coal India Ltd and Cairn India. A marginal decline was also witnessed in its stakes in companies such as IDFC. ACC. Tata Motors. Tata Steel. This entity has the aim of promoting education. L&T (Rs 16. LIC further ramped up its stake in a total of 14 Nifty constituents with purchase of shares worth an estimated Rs 4. BHEL and Reliance Infra. out of which the number of active agents were 11.764 crore). Bank of Baroda. Each year.000 crore. Lupin and Asian Paints. Maruti Suzuki. Individually. Golden Jubilee Scholarship awards is the best known. and providing better living conditions for the under privileged.659 crore). SBI.677 (94. The insurance behemoth also trimmed holdings in Ambuja Cements. RIL. LIC is estimated to have sold shares worth Rs 500-1.95. and ICICI Bank (Rs 10. Dr Reddys and Bajaj Auto. ONGC (Rs 17. Cipla. BPCL. LIC’s holding in terms of value is estimated to be highest in ITC (Rs 27.006 crore). Siemens. Wipro.500). TCS. Grasim. The major companies where LIC has raised its stake include Infosys. while its shareholding remained almost unchanged in companies like ONGC. alleviation of poverty. Initiatives Golden Jubilee Foundation LIC Golden Jubilee Foundation was established in 2006 as a charity organization. Bharti Airtel and Hero MotoCorp. L&T. Punjab National Bank. NTPC. Ranbaxy. The cumulative value of LIC holding in these 27 companies fell by little over Rs 8.916 agents as on 31 March 2014. HDFC. followed by RIL (Rs 21.33 lakh crore in all the Nifty companies put together. Sun Pharma and Tata Power. Out of all the activities conducted by the organisation.326 crore).800 crore). who wish to continue their studies and have a parental income less than ₹100000 (US$1.32. The state-run insurer also marginally hiked its exposure in Ultratech. [13] 27 . HDFC Bank. Other such companies are ITC. Gail India. In news : About holdings in various companies LIC holds shares worth about Rs 2.71%). SBI (Rs 17.000 crore in each of Mahindra & Mahindra.

It increased to 4.15 percent in the year 2000- 01when the private sector was opened up. There is much scope for the life insurance sector to develop in India. The life insurance penetration of India was 2.2 percent in 2009. But compared to UK. France. This shows that there is much scope for life insurance sector to develop in India.90 percent in 2009- 10.10. 28 .Since opening up of Indian Insurance sector for private participation. India has reported an increase in both life insurance density and penetration. Japan and South Africa. South Korea.. It increased to 52. India is way behind. inspite of India being the second most populous country in the world. Among developing countries it stands second to South Africa.1 percent in the year 2000-01 when the private sector was opened up.Conclusion and suggestions OF LIC The life insurance density of India was 9.India’s life insurance density is very low as compared to the developed countries and developing countries. The prediction of new business and total premium for both private and public sector life insurance companies in India for the year 2015 also shows an upward trend which signifies that there is a lot of scope for life insurance business in India.

naic.BIBLIOGRAPHY www.state 29 .org www.statutes.hkicpa.

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