Auditing Prepaid Insurance

Black Box Approach

Valuation/Accuracy

For the verification of the Prepaid Insurance balance

 Compare the current-year balance in prepaid insurance and insurance expense with the prior
years’ balances output, taking into account any changes in operations.
 Compute the ratio of insurance expense to assets or sales and compare it with the prior years’
ratios output.
 Compute for the ending prepaid account balance(s) using the current premium and the amount
of time remaining on the policy at the end of the period. Then, compare this to prepaid
insurance balance output at the year-end.

Existence or Occurrence