INSURANCE AUDIT

MASTER OF COMMERCE
ACCOUNTANCY
SEMESTER III

(2015-16)

Submitted by
ANANDKUMAR SINGH
Roll no.48
Guide name: PROF SACHIN BHANDARKAR
VES COLEGE OF ARTS SCIENCE AND COMMERCE
SINDHI SOCIETY, CHEMBUR, MUMBAI-71

Submitted

In Partial Fulfilment of the requirements

For the Award of the Degree of
Master of Commerce

By
ANANDKUMAR SINGH
Roll no.48

VES COLEGE OF ARTS SCIENCE AND COMMERCE

SINDHI SOCIETY, CHEMBUR, MUMBAI-71

CERTIFICATE

This is to certify that MRS. ANADKUMAR SINGH of Master of Commerce

Accountancy Semester III (2015-16) has successfully completed project
on

INSURANCE AUDIT

under the guidance of Prof SACHIN

BHANDARKAR.

Course Coordinator

Principal

Project Guide/ Internal Examiner

External Examiner

DECLARATION

I, ANANDKUMAR SINGH the student of Master of Commerce- Accountancy

Semester III (2015-16) hereby declare that I have completed this Project on
INSURANCE AUDIT. The information submitted is true and original to the
best of my knowledge.

_____________________
Students Signature

ANANDKUMAR SINGH
Roll no.48

Acknowledgment
I ANANDKUMAR SINGH indeed indebted to the people
who made this project possible. This Project is the
outcome of the genuine interest, help and guidance. I
would like to take the Opportunity to express my sincere
gratitude to Mumbai University for including project
work in our curriculum and also the Principal of V.E.S
College for giving us support.
I would like to thank my project guide Prof. SACHIN
BHANDARKAR who in spite of his busy Schedule was
always ready with her invaluable guidance and kind
attention throughout the Semester with the project work
and without whose intelligent direction and patience this
project would have been impossible. I would also like to
thank our seniors and librarians who sincerely helped me
getting all the required information and last but not the
least college for big reason that I got opportunity to work
on this project and present it.

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.
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
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.
1. Detection and prevention of errors: errors are mistakes committed unintentionally because
of ignorance, carelessness. Errors are of many types:
a. 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.
b. 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.
c. 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.
d. 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.
e. 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.
1. Check the trial balance.
2. Compare list of debtors and creditors with the trial balance.

3. Compare the names of account appearing in the ledger with the names of accounting in
the trial balance.
4. Check the totals and balances of all accounts and see that they have been properly shown
in the trial balance.
2. 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.
a. 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.
b. 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.
c. 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:
1.
2.
3.
4.

Audited account are detected as an authentic record of transaction.

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.
5. An auditor acts as a trustee of his shareholders. Hence he safeguards their
financial interest.
6. For taxation purpose auditing of account is amust.
7. In case of any claim is to be made from the insurance company only audited
account should be submitted.
8. Even in case of partnership firm auditing of accounts helps in the settlement of
claim at the time of retirement/death of a partner.
9. Auditor account helps in managerial decisions.
10.They are useful to secure loan at the of amalgamation, absorption,
reconstruction etc.

11.Auditing safeguards the interest of owners, creditors, investors, and workers.

12.It is useful to take certain financial decisions like issuing of shares, payment of
dividend etc.
ADVANTAGES OF AUDITING
1. 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.
2. 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.
3. 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.
4. Control and Operational Improvements: The independent auditor can often
make suggestions to improve controls and achieve greater operating
efficiencies within the clients organization.
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:

1. Testing is used the auditors do not oversee the process of building the
financial statements from start to finish.
2. The accounting systems on which assurance providers may place a degree of
reliance also have inherent limitations.
3. Most audit evidence is persuasive rather than conclusive.
4. Assurance providers may sometime not test the entire item in the every
subject matter.
5. 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.
6. 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.
7. 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.
8. Some items in the subject matter may be estimates and are therefore
uncertain. It is impossible to conclude absolutely that judgmental estimates
are correct.
9. 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.

10.It does not take into account the productivity and the skills of the employees
of the business.
11.For smaller companies, hiring a firm to carry out an audit can be costly.
12.Investment may be discouraged by a bad auditing

Qualifications & Disqualifications 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, 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
(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
(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.
(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
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.

(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.

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:

All patients requesting an urgent appointment will be seen that day.
All patients with epilepsy should be seen at least once a year.
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 day

Or
90% 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.

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

1. Financial Audits or Reviews

2. Operational Audits
3. Department Reviews
4. Information Systems Audits
5. Integrated Audits
6. Investigative Audits or Reviews
7. 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.
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:

1. 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.
2. 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.
3. 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

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:
1. Mail Audit: An audit form will be mailed to you to complete.
2. Telephone Audit: We'll call you or send you a letter. The phone auditor will walk
you through the audit process.
3. 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.
4. 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

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.

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.

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 overestimating 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

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 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

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 stateownedinsurance
group and investment
company headquartered
in Mumbai. It is the
largest insurance
company in India with an
estimated asset value
of1560482 crore (US$2
40 billion).[2] 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.[citation needed]
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.

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.
[3] Surendranath Tagore (son ofSatyendranath Tagore) had founded Hindusthan Insurance
Society, which later became Life Insurance Corporation.[4]
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 War I 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 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),[5] 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.

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

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;[1] 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.

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

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%).[11]

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]

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.