Submitted in the partial fulfillment of requirement

for qualifying
Master of Commerce
Part II (Accountancy)
Sem-III
Submitted by
Jayesh G. Shirodkar
Roll No.35
Project Guide : Prof.Mr.Sachin Bhandarkar

Vivekanand Education Societys College of Arts,

Science & Commerce
Sindhi Society,Chembur, Mumbai 400 071

For Academic Year (2015-2016)

CERTIFICATE
This is to certify that the project on Audit of Insurance
company in parital fulfillment fot the award of Master of
1

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 its certified that the project represents the
original work on the part of the candidate

College Seal

Prinicipal
Dr.Mrs. J.K .Phadnis

Internal Examiner

External Exmainer

Prof.Mr.Sachin Bhandarkar

ACKNOWLEDGEMENT
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
2

DECLARATION

I undersigned hereby declare that the project report

entitledAudit on Insurance Company submitted by me
under the guidance
Prof.Mr.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

Table of Contents
1

Introduction

Objectives of Auditing

Advantages of Auditing

Disadvantages of Auditing

Qualifications & Disqualifications of Auditors

Appointment of Auditor

Stages of Audit

Types of Audit

Introduction of Insurance Audit

10

Appointment of Auditor in Insurance Companies

11

Audit Procedures

12

L.I.C

13

Conclusion & Suggestion of L.I.C

14

Bibliogarphy

INTRODUCTION OF AUDITING.
The practice of auditing existed even in the Vedic period. Historical records show that Egyptians,
Greeks and Roman used to get this public account scrutinized by and independent official. Kautaly
in his book arthshastra has stated that all undertakings depend on finance, hence foremost
attention should be paid to the treasury.
Auditing as it exists today can be associated with the emerging a joint stock company during the
industrial revolution. The companys act of 1956 gives regulations regarding the audit work.

Meaning of Audit:
The word audit is derived from the Latin word AUDIRE which means to hear. Initially auditor
was a person appointed by the owners to check account whenever the suspected fraud, he was to
hear explanation given by the person responsible for financial transactions. Emergence of joint
stock companies changed the approach of auditing as ownership was pestered from management.
The emphasis now is clearly on the verification of accounting date with a view on the reliability of
accounting statement.

Definition:
Spicer and Peglar define auditing as An examination of the books, accounts and vouchers of a
businesss 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.
Mautz: defines auditing as being Concerned with the verification of accounting data with
determining the accuracy and reliability of accounting statements and reports.
5

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.

Scope of Audit.

The scope of audit is increasing with the increase in the complexities of the busines. It is said that
long range objectives of an audit should be to serve as a guide to the management future decisions.
Today most of the economic activities are largely conducted through public finance. The auditor
has to see whether these larger funds are properly used. The scope of audit encompasses
verification of accounts with a intention of giving opinion on its reliability. Hence it covers cost
audit, management audit, social audit etc. It should be remembered that an auditor just expressed
his opinion on the authenticity of the account. He has no power to take action against anybody, in
this regard its said that an auditor is a watch dog but not a blood hound.

OBJECTIVES OF AUDITING.
Auditors are basically concerned with verifying whether the account exhibit true and fair view of
the business. The objectives of auditing depends upon the purpose of his appointment.

Primary Objective.
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. It should
be remembered that in case of a company, he reports to the shareholders who are the owners of the
company and not tot the director. The auditor is also concerned with verifying how far the
accounting system is successful in correctly recording transactions. He had to see whether
6

accounts are prepared in accordance with recognized accounting policies and practices and as per
statutory requirements.

Secondary Objective:

The following objectives are incidental to the main objective of audting.

Detection and prevention of errors: errors are mistakes committed unintentionally because
of ignorance, carelessness. 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. If a transaction has been totally
omitted it will not affect trial balance and hence it is more difficult to detect. On the other
hand if a transaction is partially recorded, the trial balance will not agree and hence it can
be easily detected.
Errors of Commission: When incorrect entries are made in the books of accounts either
wholly, partially such errors are known as errors of commission. Eg: wrong entries, wrong
Calculations, postings, carry forwards etc such errors can be located while verifying.
Compensating Errors: when two/more mistakes are committed which counter balances
each other. Such an error is know an Compensating Error. 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.
Error of Principle: These are the errors committed by not properly following the
accounting principles. These arise mainly due to the lack of knowledge of accounting. Eg:
Revenue expenditure may be treated as Capital Expenditure.
Clerical Errors; A clerical error is one which arises on account of ignorance, carelessness,
negligence etc.
Location of Errors: It is not the duty of the auditor to identify the errors but in the process of
verifying accounts, he may discover the errors in the accounts. The auditor should follow the
following procedure in this regard.
Check the trial balance.
Compare list of debtors and creditors with the trial balance.
Compare the names of account appearing in the ledger with the
names of accounting in the trial balance.
Check the totals and balances of all accounts and see that they
7

have been properly shown in the trial balance.

Deduction and Prevention of Fraud: A fraud is an Error committed

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

ADVANTAGES OF AUDIT:

Audited account are detected as an authentic record of transaction.

9

Errors and frauds are detected and rectified.

It increases the morale of the staff and thus it prevents frauds and errors.
Because of his expertise the auditor may advise on various matters to his clients.
An auditor acts as a trustee of his shareholders. Hence he safeguards their financial interest.
For taxation purpose auditing of account is amust.
In case of any claim is to be made from the insurance company only audited account should be
submitted.
Even in case of partnership firm auditing of accounts helps in the settlement of claim at the
time of retirement/death of a partner.
Auditor account helps in managerial decisions.
They are useful to secure loan at the of amalgamation, absorption, reconstruction etc.
Auditing safeguards the interest of owners, creditors, investors, and workers.
It is useful to take certain financial decisions like issuing of shares, payment of dividend etc.

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. Without audits, companies would be denied access to these capital markets.
Lower Cost of Capital: Because of the reduced information risk associated with audited financial
statements, creditors may offer lower interest rates, and investors may be willing to accept a lower
rate of return on their investment.
Deterrent to Inefficiency and Fraud: When employees know that an independent audit is to be
made, they take care to make fewer errors in performing the accounting function and are less
likely to misappropriate company assets.
Control and Operational Improvements: The independent auditor can often make suggestions
to improve controls and achieve greater operating efficiencies within the clients organization.

10

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. Assurance can
never be absolute. 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.
The accounting systems on which assurance providers may place a degree of reliance also have
inherent limitations.
Most audit evidence is persuasive rather than conclusive.
Assurance providers may sometime not test the entire item in the every subject matter.
The clients 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 provision can be subjective and professional judgments have to be made. For example,
about what aspects of the subject matter are the most important, how much evidence to obtain etc.
Assurance providers rely on the responsible party and its staff to provide correct information,
which in some cases may be impossible to verify by other means.
Some items in the subject matter may be estimates and are therefore uncertain. It is impossible to
conclude absolutely that judgmental estimates are correct.
The nature of the assurance report might itself be limiting, as every judgment and conclusion the
assurance provider has drawn cannot be included in it.
It does not take into account the productivity and the skills of the employees of the business.
For smaller companies, hiring a firm to carry out an audit can be costly.
Investment may be discouraged by a bad auditing
11

QUALIFICATION & DISQUALIFICATION OF AN

AUDITORS
Qualifications of an auditor:
According to Provisions of Section 141(1) of the Companies Act, 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, 1949 and holds a valid Certificate of
Practice.
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.According to Provisions of Section 141(2) of the Companies Act,
12

2013, 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.
A person shall appointed as an auditor if he is chartered accountant within the meaning of
Chartered Accountants Act, 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.

Disqualifications of an Auditor:
According to Provisions of Section 141(3) of the Companies Act, 2013 , following persons shall
not be eligible as auditor of the company:
a) A body corporate other than LLP registered under the LLP Act, 2008
b) An officer or employee of the company.
c) A person who is partner or who in the employment, of an officer or employee of the company.
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 an relative may
hold security or interest in the company of face value not exceeding one lac rupees.
(ii) Is indebted to the company or its subsidiary, or its holding or associate company or subsidiary
of such holding company, in excess of Rs. 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, or its holding or associate company or a subsidiary of
such holding company for value in excess of Rs. 1 lacs.
e) A person or a firm who (whether directly or indirectly) has business relationship with the
company, or its subsidiary, or its holding or associate company or subsidiary of such holding
company or associate company.

Appointment of auditors
13

(1) Subject to the provisions of this Chapter, every company shall, at the first
annual general meeting, 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, the written consent of the
auditor to such appointment, and a certificate from him or it that the appointment, if made,
shall be in accordance with the conditions as may be prescribed, 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, and also file a notice of such appointment with the Registrar within fifteen days
of the meeting in which the auditor is appointed.
Explanation.For the purposes of this Chapter, appointment includes reappointment.

(2) No listed company or a company belonging to such class or classes of companies

as may be prescribed, shall appoint or re-appoint

(a) an individual as auditor for more than one term of five consecutive years;
and

(b) an audit firm as auditor for more than two terms of five consecutive years:
Provided that
14

(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;
(ii) an audit firm which has completed its term under clause (b), 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, whose tenure has expired in a company immediately
preceding the financial year, shall be appointed as auditor of the same company for a period
of five years:
Provided also that every company, existing on or before the commencement of this Act
which is required to comply with provisions of this sub-section, shall comply with the
requirements of this sub-section within three years from the date of commencement of this Act:
Provided also that, 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.

(3) Subject to the provisions of this Act, members of a company may resolve to
provide that
(a) in the audit firm appointed by it, the auditing partner and his team shall be
rotated at such intervals as may be resolved by members; or
(b) the audit shall be conducted by more than one auditor.
15

(4) The Central Government may, by rules, prescribe the manner in which the companies
shall rotate their auditors in pursuance of sub-section (2).
Explanation.For the purposes of this Chapter, the word firm shall include a limited
liability partnership incorporated under the Limited Liability Partnership Act, 2008.

(5) Notwithstanding anything contained in sub-section (1), in the case of a Government

company or any other company owned or controlled, directly or indirectly, by the Central
Government, or by any State Government or Governments, or partly by the Central Government
and partly by one or more State Governments, the Comptroller and Auditor-General of India
shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as an
auditor of companies under this Act, 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.

(6) Notwithstanding anything contained in sub-section (1), the first auditor of a

company, other than a Government company, 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, it shall inform the members of the company, 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.

(7) Notwithstanding anything contained in sub-section (1) or sub-section (5), in the

case of a Government company or any other company owned or controlled, directly or
indirectly, by the Central Government, or by any State Government, or Governments, or
partly by the Central Government and partly by one or more State Governments, the first
16

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, the Board of Directors of the
company shall appoint such auditor within the next thirty days; and in the case of failure of
the Board to appoint such auditor within the next thirty days, it shall inform the members of
the company who shall appoint such auditor within the sixty days at an extraordinary general
meeting, who shall hold office till the conclusion of the first annual general meeting.

(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, be filled
by the Board of Directors within thirty days, but if such casual vacancy is as a result of
the resignation of an auditor, 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;

(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, 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.

17

(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, if
(a) he is not disqualified for re-appointment;
(b) he has not given the company a notice in writing of his unwillingness to be
re-appointed; 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.

(10) Where at any annual general meeting, no auditor is appointed or re-appointed, the
existing auditor shall continue to be the auditor of the company.

(11) Where a company is required to constitute an Audit Committee under section 177,
all appointments, 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.

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The 5 Stages of Audit

Each stage of clinical audit involves the use of specific methods; however it also requires
the creation of a supportive environment.
Stage 1 - Preparing for audit
The reason for undertaking the audit may arise from a problem may be identified from
every day practice, coroners cases or national practice that people know or feel practice
could be improved upon.
Stage 2 - Selecting Criteria
The criterion should be written as a statement, for example:
1. All patients requesting an urgent appointment will be seen that day.
2. All patients with epilepsy should be seen at least once a year.
3. All patients on Warfarin should have their INR within the recommended limits.
Criteria can be defined from recent medical literature or the best experience of clinical
practice.A Standard should be defined in order to make it useful. It should describe the
level of care to be achieved for any particular criteria, 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.
The level of standard can often be controversial but there are basically 3 options:
A minimum standard - the lowest acceptable performance standard. This can be used
to distinguish between acceptable and unacceptable practice.
An ideal standard - the care that should be given under ideal conditions and with no
constraints. This however, is usually unattainable.
An optimum standard -lies between the minimum and the ideal. Setting these standards
requires judgment discussion and consensus with other members of the audit team.
Optimum standards represent the standard of care most likely to be achieved under
normal conditions of practice.
Stage 3 - Measuring Performance
Following data analysis areas falling below the predetermined standards can be
identified, with performance either falling above, below or staying similar to the identified
standards.
19

Stage 4 - Making Improvements

From the final reports recommendations, key recommendations should be arranged into
an action plan and given to the appropriate stakeholders such as Directors, Co-Directors,
Professionals Managers, etc for implementation.
Stage 5 - Sustaining Improvement & Re-Audit
Without re-auditing it is impossible to see if implemented recommendations have lead to
an improved level of care. 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 Kotters eight step model (1996). There are three main areas
which are; creating a climate for change, engaging and enabling the whole organisation
and finally implementing and sustaining change.

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, independent evaluation performed for the purpose of attesting to
the fairness, accuracy, and reliability of financial data. CSULB's external auditors, KPMG,
perform this type of review. CSULB's Director of Financial Reporting coordinates the work
of these auditors on our campus.
Operational Audit
A future-oriented, systematic, and independent evaluation of organizational activities.
Financial data may be used, but the primary sources of evidence are the operational
policies and achievements related to organizational objectives. Internal controls and
efficiencies may be evaluated during this type of review.
20

Department Review
A current period analysis of administrative functions, to evaluate the adequacy of
controls, safeguarding of assets, efficient use of resources, compliance with related laws,
regulations and University policy and integrity of financial information.
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, operation, maintenance, and
security of application systems in a particular environment. This type of audit might
involve reviewing a data center, an operating system, a security software tool, or
processes and procedures (such as the procedure for controlling production program
changes), etc.
Application Controls Review

A review of controls for a specific application system. This would involve an

examination of the controls over the input, processing, and output of system data.
Data communications issues, program and data security, system change control, and
data quality issues are also considered.

System Development Review

A review of the development of a new application system. This involves an evaluation

of the development process as well as the product. Consideration is also given to the
general controls over a new application, particularly if a new operating environment or
technical platform will be used.
Integrated Audit
This is a combination of an operational audit, department review, and IS audit application
controls review. This type of review allows for a very comprehensive examination of a
functional operation within the University.
Investigative Audit
21

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. It is usually focused on specific aspects of the
work of a department or individual. 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. Her direct number is 562-985-4818.
Follow-up Audit
These are audits conducted approximately six months after an internal or external audit
report has been issued. They are designed to evaluate corrective action that has been
taken on the audit issues reported in the original report. When these follow-up audits are
done on external auditors' reports, the results of the follow-up may be reported to those
external auditors.

Premium Audit

We understand that the premium audit process can be complex. 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. In addition, weve
revamped our worksheets, audit services and audit processes to make them easier to
use and complete.

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.

22

Telephone Audit: We'll call you or send you a letter. The phone auditor will walk you
through the audit process.

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.
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. Generally, a policy is audited every year, but some
policies may be audited every third year. 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. The auditor
will notify you by mail or telephone shortly after the policy expiration date to
schedule a convenient date for the audit. Why is an audit necessary?
Premiums for workers compensation insurance and for general liability
insurance are calculated based on estimates of exposure (payroll, receipts,
sales, units, etc.) to be incurred during the policy period. An audit is
conducted at the conclusion of the policy period to determine the actual
payroll and receipts incurred during the policy term. Adjustments will be made
to the premium based on the actual information.

INTRODUCTION OF INSURANCE AUDIT

23

The insurance audit is a process common to the insurance industry. We

perform an audit to ensure you have paid no more than the appropriate
premium for your exposure. An accurate audit is a benefit to you and your
business and could save you time and money. What is an audit? An audit is an
examination of your operation, records and books of account to discover your
actual insurance exposure for a specific period of time coverage was provided.
Exposure means your payroll, receipts or sales, units, number of employees
or contract cost. The audit is done to obtain insurance rating information only.
This information is not used by federal, state or local government to calculate
taxes. We intend audit information to be kept confidential.

What Is Insurance Audit?

The insurance audit is a process common to the insurance industry. We perform
an audit to ensure you have paid no more than the appropriate premium for your
exposure. An accurate audit is a benefit to you and your business and could save you
time and money.

Insurance Audit has provided valuable guidance to its clients since 1901. Consider that in its
historical context. Policyholders have placed their trust in us through two world wars, one cold
war, five regional wars, a stock market crash, the Great Depression, several recessions, eighteen
presidential administrations, September 11, 2001, and Hurricane Katrina. Punctuating those
landmarks were the countless fires, explosions, mudslides, droughts, tornadoes, floods,
earthquakes, strikes, shipwrecks and other natural and man-made catastrophes -- many known or
remembered only by those upon whom they were visited. From then to now, whenever and
wherever our clients have needed us, we have been there to provide expert counsel and support.
We do not sell insurance. From the beginning, our mission has been to provide objective,
unbiased advice to buyers of property and casualty insurance and risk-financing products and
services. We believe that such advice should never come solely from someone who is paid by
insurance companies to advance their interests. In fact, if insurance companies were always
straight-forward and fair with policyholders, Insurance Audit might never have come into
existence.
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. In 1945, the Wall Street Journal ran a
front page article on Insurance Audit describing how it improved its clients insurance coverages,
prevented losses, and reduced premiums all at the same time. Today, 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.

24

APPOINTMENT OF AUDITORS IN INSURANCE COMPANIES

1-Eligibility Conditions : 1) Auditor of an Insurance company shall be a firm ;
2) The firm should have been established and has been in continuous practice for a period of
15 years or more;
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 ;
3) (b) Alternatively, (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, either partners or as
employees, 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.
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.
2.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). 3.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. Thereafter, the maximum duration for which the auditor could be
retained would be for a period of 5 years. There will be a cooling period of two
years. An audit firm which completes a tenure of five/four years as the case
may be, at the first instance, in respect of an insurance company should not
accept statutory audit assignment of that Insurance company in the next two
years. However, audit firm may accept statutory audit of any other insurance
company subject to the compliance of maximum two statutory audits. 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.

25

Insurance Company Audit Procedures

Many commercial insurance policy premiums are rated on a variable basis such as
payroll, gross sales, or contract cost, and are subject to annual adjustment following the
policy expiration. This is the most equitable method of obtaining a fair premium for
exposure to risk.
Your Commercial Insurance Policy is pre-paid. The insurance company charges a deposit
premium, and the premium adjustment may be either an additional premium or a refund
for over-estimating the rating basis. The insurance company will send one of their
employees to review your books to obtain this information, though occasionally you will
receive a form to complete and return. Telephone audits are not as desirable since there
is no "paper trail" available to correct errors.
Your insurance company is not allowed to provide anyone else with copies of your audit
results, as this information is considered confidential. The premium adjustment
endorsement will be sent to your agent. Be sure to ask many questions of the auditor
relating to special payroll limitations, officer restrictions, etc. It may result in premium
savings.
In addition, request a copy of the auditor's handwritten worksheet. This may be invaluable
when checking the audit results. The audit adjustment usually takes place between 30
and 60 days following expiration. Your copy of the audit results will be mailed with
premium adjustments about four weeks following the audit.
General Liability

26

The most common rating basis is payroll, followed by gross sales, but may be
admissions, area, total cost, etc. Some rating bases are unique to the class, such as
hospitals, which are rated on the total number of beds.
Gross sales includes the entire amount charged for all goods sold or distributed,
services provided, rentals, dues, or fees. 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, installment finance charges, freight charges if billed separately,
and royalty income from patent rights or copyright income. Rates are normally applied
per $1,000.
Payroll includes all remuneration such as commissions, bonuses, and piece work. Unlike
Workers Compensation, the following may be excluded from ratable payroll-tips, group
insurance premiums, severance pay, clerical office employees, outside salespersons,
drivers, and drafters. You may exclude the overtime amount if your books are set up to
distinctly show overtime apart from regular wages. Most insurers will limit ratable payroll
for officers to $27,400.

Independent Contractors Coverage

Independent Contractors Coverage provides only for your secondary liability caused by
an independent contractor. An independent contractor is a sub-contractor who has a
specific job to do according to his agreement with the general contractor, but who
exercises control over his part of the job. The basis of premium for Independent
Contractors Coverage is the total cost to you for all work let or sublet in construction. Be
sure to obtain Certificates of Insurance from all independent contractors and have them
readily available for the auditor.
Contractual Liability
Contractual Liability is assumed by you under contract. The basis of premium for
Contractual Liability is the total cost of work designated by each contract.
Automobile
Some auto policies are subject to annual adjustment; however, most are not. For proper
credit, a continuous record of vehicles must be maintained, listing date of
acquisition/sale, amount of purchase, and usage.
Property
The most common adjustable property coverage is property subject to monthly reporting.
Most insurers will charge a deposit premium based on 75% of the policy limit. Following
27

expiration, the average reported values are then calculated and the provisional premium
is adjusted. Note that even though you may report values exceeding the policy limit, you
do not have coverage unless the policy is changed. You could, however, be charged for
this additional report even though you do not have the coverage.
Workers Compensation
Be certain to place an employee's entire payroll in the proper classification. You may not
divide payroll for those employees working several jobs. They must be assigned the
highest rated category. Payroll means total remuneration whether in money or a money
substitute, including items such as wages, commissions, bonuses, tips, profit sharing,
etc. Work with the auditor or your agent for proper job classifications to avoid
unnecessary premium expense.
Executive officers may be limited to $1,300 per week for ratemaking purposes. Sole
proprietors and partners may be limited to $22,200. This amount varies each year, so be
sure to check the current limitation amount. Also, be aware that those persons holding
25% or more ownership may eliminate themselves from coverage. Ask your agent for
more details.

Ratable payroll does not include overtime wages. Your books must clearly list overtime to
apply. Furthermore, all direct payroll is subject to audit, but subcontractors are not. 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. Courts will require payment from your insurer for injuries if the
subcontractor has no insurance.
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.
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, indicating the type of work performed. The date hired and/or
terminated should be indicated. Gross payroll and overtime should be totaled by the
month and quarter.
Cash disbursements journal with monthly totals disbursed to various accounts, including
materials, subcontractors, and casual labor
28

Cash receipts in sales journal totaled by the month and assigned to various categories.
Vehicle titles, registrations, 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, depending on the program.

Life Insurance Corporation of India

Life Insurance Corporation of India (LIC) is an Indian state-owned insurance
group and investment company headquartered in Mumbai. It is the largest insurance
company in India with an estimated asset value of1560482 crore (US$240 billion). As
of 2013 it had total life fund of Rs.1433103.14 crore with total value of policies sold of
367.82 lakh that year
[2]

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. Over 245
insurance companies and provident societies were merged to create the state owned Life
Insurance Corporation.
29

History
Founding organisations
The Oriental Life Insurance Company, the first company in India offering life insurance
coverage, was established in Calcutta in 1818 by Bipin Behari Dasgupta and others. Its
primary target market was the Europeans based in India, and it charged Indians heftier
premiums. Surendranath Tagore (son of Satyendranath Tagore) had founded
Hindusthan Insurance Society, which later became Life Insurance Corporation.
[3]

The Bombay Mutual Life Assurance Society, formed in 1870, was the first native
insurance provider. 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, 1986)

The first 150 years were marked mostly by turbulent economic conditions. It
witnessed, India's First War of Independence, adverse effects of the World WarI and World War II on the economy of India, and in between them the period of world
wide economic crises triggered by the Great depression. The first half of the 20th century
also saw a heightened struggle forIndia's independence. The aggregate effect of these
events led to a high rate of and liquidation of life insurance companies in India. This had
adversely affected the faith of the general public in the utility of obtaining life cover.
Nationalisation in 1955
In 1955, parliamentarian Amol Barate raised the matter of insurance fraud by owners of
private insurance agencies. In the ensuing investigations, one of India's wealthiest
30

businessmen, Ramkrishna Dalmia, owner of the Times of India newspaper, was sent to
prison for two years.
Eventually, the Parliament of India passed the Life Insurance of India Act on June 19,
1956 creating the Life Insurance Corporation of India, which started operating in
September of that year. It consolidated the life insurance business of 245 private life
insurers and other entities offering life insurance services, this consisted of 154 life
insurance companies, 16 foreign companies and 75 provident companies. The
nationalisation of the life insurance business in India was a result of the Industrial Policy
Resolution of 1956, which had created a policy framework for extending state control
over at least seventeen sectors of the economy, including life insurance.
Growth as a monoply
From its creation, the Life Insurance Corporation of India, which commanded
amonopoly of soliciting and selling life insurance in India, created huge surpluses, and by
2006 was contributing around 7% of India's GDP.
The Corporation, which started its business with around 300 offices, 5.7 million policies
and a corpus of INR 45.9 crores (US$92 million as per the 1959 exchange rate of
roughly 5 for US$1), had grown to 25,000 servicing around 350 million policies and
a corpus of over 800000 crore (US$120 billion) by the end of the 20th century.
[5]

Liberalisation post 2000s

In August 2000, the Indian Government embarked on a program to liberalise the
Insurance Sector and opened it up for the private sector. Ironically, LIC emerged as a
beneficiary from this process with robust performance, albeit on a base substantially
higher than the private sector.
In 2013 the First Year Premium compound annual growth rate (CAGR) was 24.53% while
Total Life Premium CAGR was 19.28% matching the growth of the life insurance industry
and also outperforming general economic growth.

SLOGAN OF LIC
LIC's slogan yogakshemam vahamyaha is in Sanskrit language which translates in
English as "Your welfare is our responsibility". This is derived from ancient Hindu text,
31

the Bhagavad Gita's 9th chapter, 22nd verse. The slogan can be seen in the logo,
written in Devanagari script.
[8]

PRODUCTS AND SERVICES

LIC offers a variety of insurance products to its customers such as insurance plans,
pension plans, unit-linked plans, special plans and group schemes.
[7]

Operations
Today,the LIC has 8 zonal offices, around 109 divisional offices, 2,048 branches and 992
satellite offices and corporate offices; it also has 54 customer zones and 25 metro-area
service hubs located in different cities and towns of India. It also has a network of
1,337,064 individual agents, 242 Corporate Agents, 89 Referral Agents, 98 Brokers and
42 Banks for soliciting life insurance business from the public.
[1]

Awards and recognitions

The Economic Times Brand Equity Survey 2012 rated LIC as the No. 6 Most Trusted
Service Brand of India.
[9]

From the year 2006, LIC has been continuously winning the Readers' Digest Trusted
brand award.
Voted India's Most Trusted brand in the BFSI category according to the Brand Trust
Report for 4 continuous years - 2011-2014 according to the Brand Trust Report.
[10]

Employees and agents

As on 31 March 2014, LIC had 1,20,388 employees, out of which 24,867 were women
(20.65%).

Category of employees

Total Number

No. of Women

Class-I Officers

31,420

6,292

Development Officers

26,621

1,033

Class III/IV employees

62,347

17,542

Total

1,20,388

24,867

32

Agency strength
LIC had 11,95,916 agents as on 31 March 2014, out of which the number of active
agents were 11,32,677 (94.71%).

Initiatives
Golden Jubilee Foundation
LIC Golden Jubilee Foundation was established in 2006 as a charity organization. This
entity has the aim of promoting education, alleviation of poverty, and providing better
living conditions for the under privileged. Out of all the activities conducted by the
organisation, Golden Jubilee Scholarship awards is the best known. Each year, this
award is given to the meritorious students in standard XII of school education or
equivalent, who wish to continue their studies and have a parental income less
than 100000 (US$1,500).
In news : About holdings in various companies
LIC holds shares worth about Rs 2.33 lakh crore in all the Nifty companies put together,
but it lowered its holding in a total of 27 Nifty companies during the quarter.
The cumulative value of LIC holding in these 27 companies fell by little over Rs 8,000
crore during the quarter shows the analysis of changes in their shareholding patterns.
Individually, LIC is estimated to have sold shares worth Rs 500-1,000 crore in each of
Mahindra & Mahindra, HDFC Bank, ICICI Bank, Tata Motors, L&T, HDFC, Wipro, SBI,
Maruti Suzuki, Dr Reddys and Bajaj Auto.
The insurance behemoth also trimmed holdings in Ambuja Cements, Cipla, TCS, Lupin
and Asian Paints. A marginal decline was also witnessed in its stakes in companies such
as IDFC, Hindustan Unilever, Grasim, ACC, BPCL, Bank of Baroda, Punjab National
Bank, Sun Pharma and Tata Power.
On the other hand, LIC further ramped up its stake in a total of 14 Nifty constituents with
purchase of shares worth an estimated Rs 4,000 crore.
The major companies where LIC has raised its stake include Infosys, RIL,Coal India Ltd
and Cairn India. Other such companies are ITC, Power Grid Corp, NTPC, Siemens,
Bharti Airtel and Hero MotoCorp.
The state-run insurer also marginally hiked its exposure in Ultratech, Gail India, Ranbaxy,
Kotak Mahindra Bank and HCL Technologies, while its shareholding remained almost
unchanged in companies like ONGC, Tata Steel, BHEL and Reliance Infra.
Among the Nifty companies, LICs holding in terms of value is estimated to be highest in
ITC (Rs 27,326 crore), followed by RIL (Rs 21,659 crore), ONGC (Rs 17,764 crore), SBI
(Rs 17,058 crore), L&T (Rs 16,800 crore), and ICICI Bank (Rs 10,006 crore).
[13]

33

Conclusion and suggestions OF LIC

The life insurance density of India was 9.1 percent in the year
2000-01 when the private sector was opened up. It increased to
52.2 percent in 2009- 10.Indias life insurance density is very low
as compared to the developed countries and developing countries,
inspite of India being the second most populous country in the
world. This shows that there is much scope for life insurance sector
to develop in India. The life insurance penetration of India was 2.15
percent in the year 2000- 01when the private sector was opened
up.. It increased to 4.90 percent in 2009- 10.Since opening up of
Indian Insurance sector for private participation, India has reported
an increase in both life insurance density and penetration. But
compared to UK, France, South Korea, Japan and South Africa, India
is way behind. Among developing countries it stands second to
South Africa. There is much scope for the life insurance sector to
develop in India. 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.

34

BIBLIOGRAPHY
www.icai.org/resource_file
www.icaew.com
www.hkicpa.org.hk/file
www.naic.org
www.statutes.legis.state

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