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Audit of Companies Carrying on General Insurance

A s the nam e suggests, this is an industry specific G uidance N ote issued
by the A uditing and A ssurance Standards Board. The G uidance N ote
provides detailed guidance on various im portant aspects of the audit of
com panies in the business of general insurance. It deals extensively
w ith the basic know ledge about the Industry, w hich the auditors need
to possess to effectively conduct audit of a general insurance com pany.
The G uidance N ote begins w ith by giving a brief background of the
insurance industry, evolution of the Industry, its regulation,
organisation structure of the insurance com panies, and the scope of the
G uidance N ote. The follow ing is the gist of the topics dealt w ith by rest
of the G uidance N ote:
P rin cip les of In su ran ce: contract of insurance, principles of general
insurance, classes of general insurance business, etc.
L eg a l F ram ew ork : Insurance Regulatory and D evelopm ent
A uthority A ct, 1999 and Regulations fram ed thereunder,
registration of insurance com panies, licensing of insurance
agents, requirem ents as to m inim um paid up capital, deposits,
im portant statutes as applicable to audit of general insurance
com panies, applicability of accounting standards, corporate
governance, register of policies and returns, reports and returns
to be furnished etc.
A ccou n tin g S y stem an d F ra m ew o rk: features of accounting system
in insurance com panies, accounting records periodic reports,
w orkflow in general
insurance com panies, accounting
fram ew ork, requirem ents of Schedule B to IR D A Regulations,
2000, requirem ents of the Insurance A ct, 1938 vis a vis the
C om panies A ct, 1956 etc.
A u d itin g
F ram ew ork: audit
of accounts,
rem uneration and pow ers of auditor, auditors report, audit of
branches vis a vis head office, auditing in IT environm ent, stages
of audit, developing audit plan, coordination w ith branch
m anagem ent and branch auditor.
In tern al C on trols: elem ents of internal control, specific control
procedures in general insurance business, use of service

organisations, com pliance w ith regulations, independent checks,

internal audit, investigation and inspection; and audit
A u d it at B ran ch/ D ivision al O ffice L ev el: books of account, item s of
revenue account prem ium , claim s com m ission, operating
expenses, m anagerial rem uneration, legal/professional charges,
interest/ bank charges, depreciation, interest; and item s relating
to balance sheet cash and bank balances, outstanding prem ium
and agents balances.
A u d it at H ea d O ffice L evel: areas of audit, scrutiny of head office
accounts, consolidation of head office and branch/divisional/
regional offices accounts, verification of revenue account and
profit and loss account item s, verification of balance sheet item s

R ein su ran ce: ty p es of rein su ran ce bordereaux, cession,

com m ission, line, reciprocity etc., accounting aspects, legal
requirem ents, segm entw ise audit of reinsurance, verification of
inw ards and outw ards reinsurance, coinsurance.

In vestm en ts: legal requ irem ents, IRD A guidelines, prudential

norm s, other considerations, balance sheet disclosures, valuation
of investm ents, investm ent com m ittee, audit procedures
internal control evaluation, physical verification, reporting
S pecial P u rp ose C ertification : solvency m argin, IRD A regulations,
norm s for valuation of assets and liabilities, statem ents of
solvency m argin, expenses of m anagem ent, considerations for
auditors The appendices to the G uidance N ote contain
diagram m atic representation of w orkflow in a general insurance
business, form at of financial statem ents, specim en auditors
report, requirem ents of section 619(3)(a) of the C om panies A ct,
1956, statem ent of assets and liabilities, and statem ent of solvency
m argins.
Issu ed in Ja n u a ry , 2 0 0 2
A v a ila b le o n ly a s a sep a ra te p u b lica tio n o f th e In stitu te (p r ic e: R s. 1 5 0 /).
IS B N : 8 1 8 7 0 7 2 7 3 3 .

Ordering Information
The publication can be obtained from the sales counter at the Regional
offices or at the H ead office of the Institute. C opies can also be obtained
by post. To order by post, send a dem and draft for the am ount of price
of the publication (add the charges for the desired m ode of delivery) in
favour of The Secretary, The Institute of C hartered A ccountants of
India, N ew D elhi, payable at N ew D elhi, to the Postal Sales
D epartm ent, The Institute of C hartered A ccountants of India, IC A I
Bhaw an , A-29, Sector62, Noida201309 (U .P.)