AUDIT OF INSURANCE COMPANY

MASTER OF COMMERCE
ACCOUNTANCY
SEMESTER III
(2016-17)

SUBMITTED BY:
AKSHATA RAVINDRA GAWAND
ROLL NO. 7
GUIDE NAME :
Prof. SACHIN BHANDARKAR

VIVEKANAND EDUCATION SOCIETYS

COLLEGE OF ARTS, SCIENCE & COMMERCE
Sindhi Society, Chembur , Mumbai- 400071.

AUDIT OF INSURANCE COMPANY

MASTER OF COMMERCE
ACCOUNTANCY
SEMESTER III
Submitted
In Partial Fulfillment of the requirements
For the Award of the Degree of
Master of Commerce Accountancy
By
AKSHATA .R. GAWAND
7
VIVEKANAND EDUCATION SOCIETYS COLLEGE OF
ARTS, SCIENCE & COMMERCE Sindhi Society,
Chembur, Mumbai- 400071.

VIVEKANAND EDUCATION SOCIETYS

COLLEGE OF ARTS, SCIENCE & COMMERCE
Sindhi Society, Chembur, Mumbai- 400071

CERTIFICATE

This is to certify that Shri/Miss Akshata Ravindra Gawand M.Com.

Accountancy - Semester III (2016-17) has successfully completed the
project on

Audit of Insurance Company under the guidance of

Prof. Sachin Bhandarkar.

Course Coordinator
Project Guide/ Internal Examiner
External Examiner

Principal

DECLARATION

I, Akshata Ravindra Gawand , the student of M. Com.

(Accountany) Semester III (2016-17) hereby declare that I have
completed this Project on Audit of Insurance Company.

The information submitted is true and original to the best of my

knowledge.

_____________________
Students Signature
Akshata Gawand
7

Acknowledgement

First of all immensely and wholeheartedly I thank God and also my parents for
giving me this opportunity for successful completion of my project work . Also I
thank the management for giving us a chance for doing this course. I wish to
express my sincere thanks to all my teachers, for the continuous and creative ideas,
given during my studies and also for this project .I am deeply indebted to my
mentor,

my

guide and

my

respected

teacher

Mr.

Sachin

Bhandarkar , for his patience, valuable inputs, motivations toperform more better a
nd his instincts support without which the
project work would not have completed .I am extremely indebted to the internet
technology for the valuable help rendered to me by providing the necessary
materials and support needed for the preparation of this project work.

Research Methodology

The information collected is from secondary data.

Secondary Sources :
Secondary data is a data which is collected and complied for
different purpose, which is used in research for the study. The secondary
data includes material collected from internet, newspaper, books and
magazines.

Executive Summary
The word audit is derived from a Latin word "audire" which means "to
hear". An audit is a systematic and independent examination of books, accounts,
statutory records, documents and vouchers of an organization to ascertain how far
the financial statements as well as non-financial disclosures present a true and fair
view

of

the

concern.

The insurance

audit is

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 audits are
typically performed on commercial insurance policies providing auto, general
liability, garage liability, umbrella and workers compensation

coverages. They

will collect audit information from you shortly after your policy expires. The
Guidance Note provides detailed guidance on various important aspects of the
audit of companies in the business of general insurance.

INDEX
SR. NO.
1.

TOPIC
What is an Insurance Audit?

2.

When and how will the audit be done?

3.

Audit of an Insurance Company

4.

The Audit Process

5.

Guidance note on audit of companies carrying on

General Insurance Business

6.

Principles of Insurance

7.

Steps taken by auditor while auditing the

accounts of insurance company

8.

Principles of Auditing

9.

BAJAJ ALLIANZ GENERAL INSURANCE

COMPANY
Introduction

10.

Audit Report of Bajaj Allianz General Insurance

Company

11.

Conclusion

12.

Bibliography

What is an Insurance Audit?

Insurance audits are typically performed on commercial insurance policies
providing auto, general liability, garage liability, umbrella and workers
compensation coverages. When these policies are issued, you are asked to pay an
estimated premium. Estimated premiums are based on the nature of your business
and your estimate of exposures (i.e. payroll, sales, etc.) for the policy period. Once
your policy expires, we conduct an audit to collect information on actual exposures
and operations and then determine the final premium.

When and how will the audit be done?

They will collect audit information from you shortly after your policy expires.
Smaller, less complex policies may only require that you assemble and send the
necessary information to us or have the information available when a telephone
auditor calls. Larger and more complicated policies are handled by a field auditor,
who will schedule an appointment and visit your business. If you must change or
cancel a scheduled appointment, please advise the auditor as far in advance as you
can. It is best to schedule and complete this audit within 30 days from your policy
expiration date. It is important for the auditor to ask questions about your
operations. If you cannot be present to answer questions, someone familiar with
the specifics of your entire business operations should be available. If you direct us
to your accountant, we will obtain as much information as possible from your

accountant and contact you if we have additional questions. Most of our audits
only take a half hour or less, but audits of larger policies may take longer. Though
the auditor will have a number of questions, you will not have to be directly
involved during the entire audit if adequate records are available.

Audit of an insurance company

Following special points have be considered while doing the audit of an insurance
company:

1. GENERAL
a) Auditor first of all should study the relevant provisions of the insurance act
governing the insurance company.
b) Auditor should evaluate the internal control system of the entity. He should
decide

that

up

to

what

extent

he

can

rely

on

this

system.

c) He should check the minutes of the meeting of the shareholders and of board of
directors.
d) He should check the documents relating to the securities deposited with the
reserve

bank

of

India.

e) It should be ensured that in preparation of the annual accounts the rules and
provision of the insurance act and companies act have been followed.

2. RECEIPT
a) The main source of income of an insurance company is the receipt of premiums

from

policyholders.

Auditor

should

vouch

thesecarefully.

b) Outstanding premiums should be brought in to the books of account.

c) Premiums received in advance should be taken to the balance sheet as an asset
and

should

not

be

shown

as

income

of

the

year.

d) Other source of income may be rents, dividends and interest on investment. It

should be checked carefully.

3. PAYMENTS
a) The main expenditure of an insurance company is the payment of claims on the
policies.

Auditor

should

check

these

very

carefully.

b) Claims admitted but not paid till the balance sheet date should be shown as a
liability

in

the

balance

sheet.

c) Other heads of expenditure should be checked with their respective vouchers.

4. BALANCESHEET.
a) Auditor should check the assets and liabilities appearing at the date of the
balance sheet. It should be verified that they are shown at the correct value. Proper
depreciation

must

be

provided

for

on

the

assets.

b) Proper provision must be made for the unexpired risk on the policies, which
may attract claims in future.

The Audit Process

There are five phases of our audit process: Selection, Planning, Execution,
Reporting, and Follow-Up.

Selection Phase
Internal Audit conducts a University-wide risk assessment near the end of each
calendar year. We develop the audit plan for the subsequent year based on the
results of this assessment and the departments available resources.

The

Chancellor and the Fiscal Affairs and Audit Committee of the Kansas Board of
Regents review the audit plan before it is executed.

Planning Phase
During the planning phase of each project, the Internal Audit staff gather relevant
background information and initiate contact with the client. Auditors meet with
University leadership and clients to identify risks and determine the objectives and
scope of the audit as well as the timing of fieldwork and the report distribution.

Execution Phase
Once the audit is planned, fieldwork is executed by the Internal Audit staff. Clients
are kept informed of the audit process through regular status meetings. We discuss
audit observations, potential findings, and recommendations with the client as they
are identified.

Reporting Phase
A summary of the audit findings, conclusions, and specific recommendations are
officially communicated to the client through a draft report. Clients have the
opportunity to respond to the report and submit an action plan and time frame.

These responses become part of the final report which is distributed to the
appropriate level of administration.

Follow-Up
Internal Audit follows up on all audit findings within one year of when the report
was issued

Guidance Note on Audit of Companies Carrying on General

Insurance Business (Revised)
As the name suggests, this is an industry specific Guidance Note issued by the
Auditing and Assurance Standards Board. The Guidance Note provides
detailed guidance on various important aspects of the audit of companies in the
business of general insurance. It deals extensively with the basic knowledge
about the Industry, which the auditors need to possess to effectively conduct
audit of a general insurance company. The Guidance Note begins with by
giving a brief background of the insurance industry, evolution of the Industry,
its regulation, organisation structure of the insurance companies, and the scope
of the Guidance Note. The following is the list of the topics dealt with by rest
of the Guidance Note:

Principles of Insurance:
Contract of insurance, principles of general insurance, classes of
general insurance business, etc.

Legal Framework:
Insurance Regulatory and Development Authority Act, 1999 and
Regulations framed thereunder, registration of insurance companies, licensing
of insurance agents, requirements as to minimum paid up capital, deposits,
important statutes as applicable to audit of general insurance companies,
applicability of accounting standards, corporate governance, register of policies
and returns, reports and returns to be furnished etc.

Accounting System and Framework:

Features of accounting system in insurance companies, accounting
records periodic reports, workflow in general insurance companies,
accounting framework, requirements of Schedule B to IRDA Regulations,
2000, requirements of the Insurance Act, 1938 vis a vis the Companies Act,
1956 etc.

Auditing Framework:
Audit of accounts, qualifications, remuneration and powers of auditor,
auditors report, audit of branches vis a vis head office, auditing in IT
environment, stages of audit, developing audit plan, coordination with branch
management and branch auditor.

Internal Controls:
Elements of internal control, specific control procedures in general
insurance business, use of service organisations, compliance with regulations,

independent checks, internal audit, investigation and inspection; and audit

procedures.

Audit at Branch/ Divisional Office Level:

Books of account, items of revenue account premium, claims

commission, operating expenses, managerial remuneration, legal/professional
charges, interest/ bank charges, depreciation, interest; and items relating to
balance sheet cash and bank balances, outstanding premium and agents
balances.

Audit at Head Office Level:

Areas of audit, scrutiny of head office accounts, consolidation of head

office and branch/divisional/ regional offices accounts, verification of revenue
account and profit and loss account items, verification of balance sheet items
etc.

Reinsurance:
Types of reinsurance bordereaux, cession, commission, line,
reciprocity etc., accounting aspects, legal requirements, segment-wise audit of
reinsurance, verification of inwards and outwards reinsurance, co-insurance.

Investments:
Legal requirements, IRDA guidelines, prudential norms, other
considerations, balance sheet disclosures, valuation of investments, investment

committee, audit procedures internal control evaluation, physical verification,

reporting considerations.

Special Purpose Certification:

Solvency margin, IRDA regulations, norms for valuation of assets and
liabilities, statements of solvency margin, expenses of management,
considerations for auditors.

Following steps should be taken by the auditor while

auditing the accounts of insurance company.
1. Internal Check Inspection:
Generally internal check system insurance company is well organized that the
bank. But auditor should examine the details of the internal check system.
2. Verify The Premium:
Auditor should vouch the premium received with the insurance policy register.
He should check the total outstanding premium from the books also.

3. Inspect The Claim Register:

Auditor should compare the amount of claim with the claim register. He should
also check the policies cancelled with the documentary evidences.

4. Cash Balances:
Auditor should check the cash balances relating to the loans of the company.
He should alo verify the interest earned.

5. Examine the Final Accounts:

Auditor should examine that the final activities of the insurance company have
been prepared according the insurance act or not?
6. Verify the Payable Commission:
Auditor should vouch the commission payable to agents. He should verify that
this commission does not exceed the rates prescribed in the insurance act.

7. Examine the Investment:

Auditor should examine all the investment made by the insurance company.
Valuation of investment should also be checked.

8. Insurance Act 1938 Application:

Auditor should also examine that all that prescribed legal requirements have
been complied by the insurance company.
9. Checking of Bonus:
Auditor should vouch the bonus paid in the bonus register and agency register
on closing balance.

10.

Provision of Depreciation:

Auditor should also verify that sufficient depreciation is provided.

11.

Examine Insurance Policies:

Auditor should inspect the accounts reinsured. He should also note the amount
of reserves relating to the company loan.
12. Accrued Interest Checking:
Auditor should verify the receipts interest, dividends and rent. He should of
reserves relating to the company loans.

13.

Allocation of Surplus:

Auditor should see that surplus is proper allocated to the shareholders policy

holders.

14.

Expenses Allocation:

Auditor should examine that the management expenses are allocated correctly
between the various accounts.

15.

Deposits in State Bank:

Auditor should verify that the required amount is deposited in the state bank or
not?
16. Balances of Agency:
Auditor should verify the balances of agency and branch to see that they are
all recoverable.
17. Loans against Policy:
Auditor should verify those loans advanced to the policy holders against their
policies. He should check the receipts and see that they are within the surrender
value policy.

Principles Of Auditing:
Fundamental principles are those

according to which the books of business

accounts are audited. These principles can be changed according the desire of the
auditor.
We discuss the main principles of auditing under these headings:

1. Planning:
It is the basic principle of auditing .the auditor should plan before starting
the work. In planning auditor decides accounting about the system and
internal control procedure.
2. Honesty :
Honesty and sincerity is the second important principle of auditing. The
loyalty of auditor to work and profession must be beyond the doubts.

3. Impartiality:
In case of audit the attitude of the auditor must be impartial. Keeping in
view this principle his personal views may not be included in the audit
report.

4. Secrecy:
Secrecy must be maintained by the auditor during the process of audit. He
cannot disclose any information to the third party.

5. Evidence:
During the audit the auditor can collect the evidence through the working
papers. He can frame his opinion on the audit evidence. The nature and
source of evidence must be kept in view by the auditor.

6. Consistency:
It is an important principle of auditing. In case of selecting the rates of
depreciation and valuation of stock the accountant must follow the rates of
the coming years. In this regard there should be consistency and changes are
not acceptable.
7. Legal Frame work:

The business activities may run within the rules and legal formalities. To
protect the rights of the interested parties rules must be applied.

8. Working Paper Preparation:

The auditor collect documents providing evidence that audit was carried out
according the principles. The auditor prepares the working paper and kept in
this custody as a proof.

9. Internal Control:
The auditor will examine the accounting system and inter control. To frame
his opinion, he keeps in view the evidence obtained from the books.

10. Report :
According the principle of auditing a report will be prepared by the auditor at
the end. It may be conditional or unconditional. The auditor can draw
conclusion and disclose the facts and figures about the business for general
information.

BAJAJ ALLIANZ GENERAL INSURANCE COMPANY.

Introduction

Bajaj Allianz General Insurance is a private general insurance company in

India. The company is a joint venture between Bajaj Finserv Limited (formerly
part of Bajaj Auto Limited) owned by the Bajaj Group of India and Allianz SE, a
European financial services company.

History
Bajaj Allianz General Insurance received an Insurance Regulatory and
Development Authority of India (IRDAI) certificate of registration on 2 May 2001
to conduct general insurance business, including health insurance, in India. In the
first year of its operations the company had 36 offices and around 100 employees.
The company started its operations with a paid up capital of 1.10 billion. Bajaj
Finserv Limited holds 74% and the remaining 26% is held by Allianz SE. Bajaj
Allianz is headquartered in Pune with offices in over 200 cities in India and more
than 3,500 employees as of 2015.
The Company lists 97 filed and approved products, of which 27 are health
products.
In January 2014, the company announced it would open up all-women branches.
As of 2015, the company has 30 such branches in India.

Audit Report of Bajaj Allianz General Insurance Company

2015-16.
Secretarial Audit Report for the year ended 31 March 2016
Form No. MR-3

[Pursuant to section 204(1) of the Companies Act, 2013 and Rule No.9 of the
Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014]
To,
The Members,
Bajaj Allianz General Insurance Company Limited,
(CIN U66010PN2000PLC015329)
GE Plaza Airport Road,
Yerawada,
Pune- 411006
I have conducted the secretarial audit of the compliance of applicable
statutory provisions and the adherence to good corporate practices by Bajaj Allianz
General Insurance Company Limited, (hereinafter called as the Company).
Secretarial Audit was conducted in a manner that provided me a reasonable basis
for evaluating the corporate conducts/statutory compliances and expressing my
opinion thereon.
Based on my verification of the Company, books, papers, minute books,
forms and returns filed and other records maintained by the Company and also the
information provided by the Company, its officers, agents and authorized
representatives during the conduct of secretarial audit, I hereby report that in my
opinion, the Company has, during the audit period covering the financial year
ended on March st 31 , 2016, complied with the applicable statutory provisions
listed hereunder and also that the Company has proper Board-processes and
compliance mechanism in place to the extent, in the manner and subject to the
reporting made herein after:

I have examined the books, papers, minute books, forms and returns filed
and other records maintained by the Company for the financial st year ended on
March 31 , 2016, according to the provisions of:
(I) The Companies Act, 2013 (the Act) and the rules made thereunder;
(ii) Foreign Exchange Management Act, 1999 and the rules and regulations made
there under regarding Foreign Direct Investment;
(iii) The Insurance Act, 1938, the Insurance Regulatory and Development
Authority Act, 1999 and rules and regulations made thereunder;
(iv) Rules, regulations, guidelines, circulars and notifications issued by the
Insurance Regulatory and Development Authority of India (IRDAI) as are
applicable to a general insurance company
The Company is a Public Company which is a subsidiary of a Listed Company.
I have also examined compliance with the applicable clauses of the Secretarial
Standards pursuant to section 118(10) of the Act, issued by the Institute of
Company Secretaries of India.
During the period under review the Company has complied with the, applicable,
provisions of the Act, Rules, Regulations, Guidelines, Standards, etc. mentioned
above.
I further report that the Board of Directors of the Company is duly constituted
with proper balance of Executive Directors, Non-Executive Directors and
Independent Directors. The changes in the composition of the Board of Directors
that took place during the period under review were carried out in compliance with
the provisions of the Act.
Adequate notice was given to all Directors to schedule the Board Meetings,
including committees thereof, alongwith agenda and detailed notes on agenda at
least seven days in advance, and a system exists for seeking and obtaining further
information and clarifications on the agenda items before the meeting and for

meaningful participation at the meeting by the directors. The decisions are carried
unanimously.
I further report that there are adequate systems and processes in the Company
commensurate with the size and operations of the Company to monitor and ensure
compliance with applicable laws, rules, regulations and guidelines.
I further report that during the audit period there was no event/action having major
bearing on the Company's affairs in pursuance of the above referred laws, rules,
regulations, guidelines, standards etc.
Shyamprasad D. Limaye
FCS No. 1587 C P No.: 572
Pune
19th May 2016

CONCLUSION
Audit is an official inspection of an organizations accounts,
typically by an independent body. Insurance audits are typically
performed on commercial insurance policies providing auto,
general

liability,

garage

liability,

umbrella

and

workers

compensation coverages. Larger and more complicated policies

are handled by a field auditor, who will schedule an appointment
and visit your business. It is important for the auditor to ask
questions about your operations. The main expenditure of an
insurance company is payment of claims on the policies. Auditor

should check this very carefully. Auditor should check the assets
and liabilities appearing at the date of the balance sheet. It
should be verified that they are shown at the correct value. There
are five phases of audit process i.e selection, planning, execution,
reporting and follow-up. Secrecy must be maintained by the auditor during
the process of audit. He cannot disclose any information to the third party.

BIBLIOGRAPHY
https://internalaudit.ku.edu/project-process
http://www.icai.org/new_post.html?post_id=555
http://www.morrisonfuson.com/wp-content/uploads/2013/09/How-to-Prepare-foran-Insurance-Audit.pdf
www.google .com