Detailed Audit Programme on Important Areas of Insurance Business

1. Detailed Audit Programme on Important Areasof InsuranceBusiness taxguru.in/corporate-law/detailed-audit-programme-important-areas-insurance-business.html As you are aware that an Insurance Company is a company incorporated under provisions of the Companies Act, 1956/2013, licensed under the Insurance Act,1938 and IRDAI Act, 1999. An insurance company may engage in life , general orhealth insurance business. The financial statements of an insurance company areprepared according to the provisionsof; The Companies Act,2013; The Insurance Laws( Amendment)Act,2015 The IRDAI( Preparation of Financial Statements and Auditor’s Report ofInsurance Companies) Regulations,2002; The applicable Accounting Standards ofICAI. It is duty of the management of the company to prepare financial statements accordingto the provisions of applicable laws to give true and fair views of financial results and financial position of the company at the end of accounting period. It is legal obligation for the Board of Directors of every company to prepare and present annual accounts to the shareholders along with Annual Reports i.e. BoardReport. The Companies Act,2013 delas with the procedure and disclosures required to be furnished in Annual Reports. It also provides the procedure of approval, presentation at the meeting of Board and the members of the company of financial statements andfiling the same with the Registrar of Companies each year.

2. ACCORDING TO SECTION 12 OF THE INSURANCE ACT, 1938, thefinancial statements of every insurer must be audited annually by the auditor. As prescribedby IRDA, 1999, every insurer with respect to his insurance business and also its shareholder’s funds shouldprepare: A BalanceSheet; A Profit & LossAccount; Cash flowstatement; Payments and a RevenueAccount. All these must be done as per the IRDA regulations at the end of each financialyear. SOME IMPORTANT PROVISIONS GOVERNING PREPARATION OF FINANCIAL STATEMENTS UNDER COMPANIES ACT,2013. SECTION 92(3)-(1) Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on theclose of the financial yearregarding– its registered office, principal business activities, particulars of its holding,subsidiary and associatecompanies; its shares, debentures and other securities and shareholdingpattern; omitted. its members and debenture-holders along with changes therein since the close ofthe previous financialyear; its promoters, directors, key managerial personnel along with changes there insince the close of the previous financialyear; meetings of members or a class thereof, Board and its various committees alongwith attendancedetails; remuneration of directors and key managerialpersonnel; penalty or punishment imposed on the company, its directors or officers and detailsof compounding of offences and appeals made against such penalty orpunishment; (i) matters relating to certification of compliances, disclosures as may beprescribed; details, as may be prescribed, in respect of shares held by or on behalf of theForeign Institutional Investors;and such other matters as may be prescribed, and signed by a director and thecompany secretary, or where there is no company secretary, by a company secretary inpractice:

3. Provided thatin relation to One Person Company and small company, the annual return shall be signed by the company secretary, or where there is no company secretary, bythe director of thecompany. Provided further thatthe Central Government may prescribe abridged form ofannual return for “One Person Company, small company and such other class of classes of companies as may beprescribed”. The annual return, filed by a listed company or, by a company having such paid-up capital or turnover as may be prescribed shall be certified by a company secretary in practice in the prescribed form, stating that the annual return discloses the factscorrectly and adequately and that the company has complied with all the provisions of thisAct. An extract of the annual return in such form as may be prescribed shall form partof the Board’s report. Every company shall file with the Registrar a copy of the annual return, within sixty days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within sixty days from the date on which theannual general meeting should have been held together with the statement specifyingthe reasons for not holding the annual general meeting, with such fees or additional feesas may beprescribed. If any company fails to file its annual return under sub-section (4), before the expiryof the period specified therein, such company and its every officer who is in default shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of 8[two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is andefault. If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, heshall be liable to a penalty of two lakhrupees. SECTION 134 The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his reportthereon. The auditors’ report shall be attached to every financialstatement. There shall be attached to statements laid before a company in general meeting,a report by its Board of Directors, which shallinclude—

4. the web address, if any, where annual return referred to in sub-section (3) ofsection 92 has beenplaced; • number of meetings of theBoard; • Directors’ ResponsibilityStatement; • (ca) details in respect of frauds reported by auditors under sub-section (12) of section143 other than those which are reportable to the CentralGovernment; • a statement on declaration given by independent directors under sub-section (6)of section149; • in case of a company covered under sub-section (1) of section 178, company’spolicy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section178; • explanations or comments by the Board on every qualification, reservation oradverse remark or disclaimermade— • by the auditor in his report;and • by the company secretary in practice in his secretarial auditreport; • particulars of loans, guarantees or investments under section186; • particulars of contracts or arrangements with related parties referred to insub-section • of section 188 in the prescribedform; • the state of the company’s affairs; • the amounts, if any, which it proposes to carry to anyreserves; • the amount, if any, which it recommends should be paid by way ofdividend; • material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the companyto which the financial statements relate and the date of thereport; • the conservation of energy, technology absorption, foreign exchange earningsand outgo, in such manner as may beprescribed; • a statement indicating development and implementation of a risk managementpolicy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of thecompany; • the details about the policy developed and implemented by the company oncorporate social responsibility initiatives taken during theyear;

5. in case of a listed company and every other public company having suchpaid-up share capital as may be prescribed, a statement indicating the manner in which formal 4[annual evaluation of the performance of the Board, its Committees andof • individual directors has beenmade]; • such other matters as may beprescribed. • Provided that where disclosures referred to in this sub-section have been included in the financial statements, such disclosures shall be referred to instead of being repeated inthe Board’s report: • Provided further thatwhere the policy referred to in clause (e) or clause (o) ismade available on company’s website, if any, it shall be sufficient compliance ofthe • requirements under such clauses if the salient features of the policy and anychange therein are specified in brief in the Board’s report and the web-address is indicated therein at which the complete policy isavailable. • (3A) The Central Government may prescribe an abridged Board’s report, for thepurpose of compliance with this section by One Person Company or smallcompany] • The report of the Board of Directors to be attached to the financial statementunder this section shall, in case of a One Person Company, mean a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in hisreport. • The Directors’ Responsibility Statement referred to in clause (c) of sub-section(3) shall statethat— • in the preparation of the annual accounts, the applicable accounting standardshad been followed along with proper explanation relating to materialdepartures; • the directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for thatperiod; • the directors had taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and otherirregularities; • the directors had prepared the annual accounts on a going concern basis;and • the directors, in the case of a listed company, had laid down internal financialcontrols to be followed by the company and that such internal financial controls are adequateand were operatingeffectively. • Explanation.—For the purposes of this clause, the term “internal financialcontrols” • means the policies and procedures adopted by the company for ensuring the orderlyand efficient conduct of its business, including adherence to company’s policies,the

6. safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparationof reliable financialinformation; (f) the directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operatingeffectively. The Board’s report and any annexures thereto under sub-section (3) shall be signed by its chairperson of the company if he is authorised by the Board and where he is notso authorised, shall be signed by at least two directors, one of whom shall be a managing director, or by the director where there is one director. A signed copy of every financial statement, including consolidated financialstatement, if any, shall be issued, circulated or published along with a copy eachof— any notes annexed to or forming part of such financialstatement; the auditor’s report;and the Board’s report referred to in sub-section(3). (8) If a company is in default in complying with the provisions of this section, thecompany shall be liable to a penalty of three lakh rupees and every officer of the company who isin default shall be liable to a penalty of fifty thousandrupees. SECTION 135(2)- The Board’s report under sub-section (3) of section 134 shalldisclose the composition of the Corporate Social Responsibility Committee, which shall be constituted according to the provisions of Section135(1). PLEASE NOTE THAT:- The main objective of provisions of Section 135 is formationof Corporate Social Responsibility Committee of the eligiblecompanies. SECTION 177(8) The Board’s report under sub-section (3) of section 134 shalldisclose the composition of an Audit Committee and where the Board had not acceptedany recommendation of the Audit Committee, the same shall be disclosed in suchreport along with the reasonstherefor. SECTION 204 (1)Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board’s report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, insuch form as may beprescribed. WHAT ARE THE TYPES OF INSURANCE WHERE INSURANCE AUDITSAPPLIES? The insurance audit service applies to all types of insurance contracts, either it isfor individuals orcompanies. Some of the types of insurance where insurance audit is applicable are asfollows:

7. Property insurance that can be of stock, buildings, reserves,home. Liability Insurance such as employer’s liability, public liability, professionalindemnity, environmental liability, product liability,etc. Business Interruption as well as employee embezzlementinsurance. Insurances related to the theft of money andproperty. Transit Insurance that includes sea, air, orland. Life Insurances such as Permanent Insurance, Term Insurance,etc. Health Insurance that is individual or groupinsurance. Employees benefit Insurance Plan that includes life, accident, andhealth. Pension Insurance that includes individual or group pensioninsurance. Vehicle Insurance consisting of individual and vehiclefleet. WHAT ARE THE ESSENTIAL POINTS CHECKED IN FINANCIALSTATEMENTS; Audit Areas in case of Auditor has to apply below mentionedprocedures. premium A.VERIFICATION OF PREMIUM In a separate bank account, the premium collections are credited. No withdrawals are generally permittedfrom that account for the purpose of a general expenditure. The auditor shallverify: 1. Before starting the verification of premium income, the auditor must look into the internal controls andcompliance, which is laid down for the collection and recording of premiums. 2. The cover notes must be numberedserially. 3. The auditor needs to check if the premium registersare maintained chronologically, providing completedetails including GST charged according to theacceptance advicedaily. 2. As prescribed in the policy of insurance company, thecollections are transferred tothe Regional Office orHead office. 4. The auditor must verify if they figured the premium amount mentioned in the register tally with those shownin GeneralLedger. 5. The auditor will also verify that the installments thatare due on or before the balance sheet date hasbeen received or not, have been accounted as premiumincome for the year underaudit. 3. According toSection 64VB of the Insurance Act, 1938, the insurer shall assume norisk without the receiptof premium. 6. Whether premium has been recognized as incomeover contract period of risk ornot. 7. Check whether the premium is realized beforethe commencement ofpolicy. 4. It is ofutmost importance to anauditor to verify a premium because the insurance premium is collected upon issuingpolicies. 8. Check whether due to dishonored chequesthe respective policies were cancelled and properlynotified. 9. Check refund of premium on cancellation ofinsurance policies. 5. It is a considerationfor bearing the risk ofthe insurancecompany.

8. Whether reserves for Unexpired Risks havebeen created as the amount representing that part of the premium written which is attributable to ,and to be allocated to the succeeding accountingperiods. Whether unearned premium has beenshown separately as Current Liability. The premium received in advance shall not be included in “ Unearned PremiumAccount”. Whether unearned premium received inadvance, which represents premium income not relating toCurrent Accounting period , has been disclosed separately in the FinancialStatements. Whether necessary changes based on actuarial/ technical evaluation has been made to the liabilityfor contracts exceeding fouryears. Whether premium deficiency has beenrecognized when sum of expected claim costs, related expensesand maintenance costs exceed related unearnedpremium. Check whether the premiums fixed for different kindsof policies were based on the advice of the actuary as well as the data base available with it and approved by the Board before filing withIRDAI. Check the reasonableness of the discounts allowedby the Insurer on the premiums. He should comment on the profitability of the portfolio due to allowance of excess discounts. Check, while allowing discounts, whether the claims history of group portfolio or client‘s portfolio was takeninto account. check the standard clauses were included in thepolicy documents including inclusions andexclusions. If any specific additions were made, checkwhether additional premium werecollected. Check whether the subrogation clause, agreed bank clause, average clause, reinstatement clause etc., were expressly included in the policies to protect thecompany. Check whether for coverage of additional perils,extra premium was collectedappropriately. B.VERIFICATION OF CLAIMS The auditor from each division or branch must obtain the informationfor The auditor shallverify: 1. Check the provision for unsettledclaims. 2. Check if the provision is made for such claims forwhich the company is legallyliable.

9. all classes ofbusiness. 3. Check if the provision that is made is not more thanthe insuredamount. 2. The auditor shall determine the total number of documents that is to be checked, providing dueimportance to claims of highervalue. 4. Check the Co-insurance arrangements; thecompany has made provisions with respect to its own share of anticipatedliability. The Auditor should confirmthat a) The components of the ultimate cost of claims toan insurercomprise; 3. The claim accountgets debited with all the payments that includethe repair charges, survey fees, photographcharges etc. i) The claims under policies;and ii) Specific claims settlementcosts. Please Note : Claims under policiescomprise; 4. Classification and accounting under appropriate headingin FinancialStatements. i) The claims made for lossesincurred; j) Those estimated or anticipated under policies followinga lossoccurrence. 5. Completenessof liabilityaccount. b) The float account shows only the deposit amount.The auditor needs to verify that steps have been takento reconcile at the yearend. 6. Accuracy ofexpenses. Whether the liability for outstanding claims in respectof both Direct Business and inward Reinsurance business has rightly brought intoaccounts. Whether all the claims have been recorded in thebooks of accounts and not kept outside the for anyreason whatsoever. Whether reserves have been made for IBNRand IBNER. Whether TPA claims provisions have been made asper the statements received fromTPAs. Whether accounting estimates includes claims cost adjusted for estimated salvage value if there issufficient degree of certainty of itsrealization. Whether estimates of claims made for contracts exceeding four years has been recognized on the basisof Actuarial Report andvaluation. The Auditor should check details of premiumreceived in last 15 days prior to closure of financial year and after closure of financialyear. The auditor should verify the claims lodged with the company within a period of 15 days before and after endof financialyear.

10. Check whether proper intimation/notice was given by the insured to the insurer on the happening offire/accident within the timeprescribed. Check whether the Insurer had appointedproper surveyor to assess thelosses. Check whether all the documentary evidenceswere submitted by the insured as per terms and conditionsof thepolicy Auditor should ensure that the surveyor hadsubmitted the estimated loss within the time prescribed andthe insured had given adequate cooperation in surveyingthe damages/perils. Check whether the original policy wassurrendered along with the claim application to check the title ofthe goods. Check the documentary evidence produced bythe insured about the efforts taken by him to prevent orreduce the loss due to perils and the reasonableness of thecost incurred for such prevention or minimisation ofloss. Check whether the average clause was enforcedwhile settling the claims in case of underinsurance. Check reasonableness on the loss assessedand salvages were taken intoaccount. Check whether the claims were paid subjectto exclusion clauses mentioned in thepolicy. Auditor should ensure that the claims for losses be honoured on verifying the Total Loss, particularaverage, general average, salvage loss, sue and labour charges and surveycharges. Check whether all the larger claims were reportedto the Reinsurance department in time to stake claim from thereinsurers. C. VERIFICATIONOF COMMISSION The remunerationpaid to an agent is made through commission.The remuneration amount is calculated by applying a percentage to the premium collected by the agent. The auditor shallverify: 1. Voucher disbursement entries with regard to the disbursement vouchers with the copies of commissionbills andstatements. 2. Check if the vouchers are authorized by the officers-in- charge as per the rules and also income tax is deductedat source. 3. Check the amount of commissionallowed. 4. Check the accounting period ofcommission. 10/20

11. 2. The commission ispaid to the agents for the business procured, and it is then debited to commission on Direct Business Account. Insurance agents usually solicit the insurance business. 5. Check if commission paid on portability of policiesor not. 6. Check whether agent is depositing totalpremium received by them in bank account of companywithout deducting theircommission. 7. Check commission /Brokerage paid to agentsand intermediaries are in accordance with IRDAIRegulations and contract withthem. Check for list of agents and intermediaries and rateof payment of commission to them from thecompany. Auditor should ensure that relevant expenditure in connection with claims like survey fees andexpenses, legal expenses, charges payable to TPAs andCommission payable to Agents and Brokers were accounted inthe respective revenueaccounts. check the commission receivable and payablein reinsurance were correctlyaccounted. check whether TDS was deducted on the commission payments or declarations from the agents fornonreduction oftaxes. check that there is no excess commission paidthan prescribed by the IRDA for differentpolicies. check the commission paid should match thepolicies sold through agents or otherintermediaries. Auditor should ensure appropriateness of the accounting treatment of the coinsurancebusiness received, premium receivable and payment ofcommission. check whether appropriate commission wasretained by the leader while transferring the share of premium to theco-insurer. Auditor should ensure appropriateness of the accounting treatment of the reinsurance businessceded, premium payable and payment ofcommission. Auditor should examine the arrangements made with the Principal Insurer reinsurance business received, premium received and commission structure, eventlimits etc. Auditor should check Non-proportionalarrangements for each insurance segment, estimated gross and net premium, commission structure, cover limits, deductible, excess of loss premium, reinstatement provisionsetc.

12. Auditor should check the structure of Reinsurance Program with details of proportional arrangements foreach insurance segment including treaty capacity,retention limits, estimated premium and reinsurancecommission. Auditor should check the reasonableness ofthe commission payable to the dealers ofvehicles. D. MANAGEMENT EXPENSES/OPERATING EXPENSES The auditor shallverify: 1. Expenses that are more than Rs. 5 lakhs or 1% ofthe net premium, whichever is higher. This must be shown separately. Expenses that are not directly related to insurance business must be shown separately, for example, costs made in the investment department or bank chargesetc. Auditor should confirm that competent authorityhas approved all managementexpenses. Check whether expenses properly classifiedas Revenue and Capital and proper effect has been givenin the financialstatements. Check whether proper provisions has been madefor outstanding expenses and shown separately in head “ CurrentLiabilities”. Check whether operating expenses that cannot be allocated directly to product classifications or the companywide classification, such as salaries of officers and employees, and taxes, allocated in accordancewith the AllocationStandards. E. INVESTMENTAUDIT; The auditor must follow the following prescribed provisions with regard to the investments of theInsurance Act, 1938, at the time of the inspection of the investments of the insurancecompany: An insurance company can invest only in approved securities. However, it can also invest in securitiesother than approved securities if the following conditions are satisfied: The investments made must not exceed 25% of thetotal investmentsmade. The investment must be made with the consent ofthe board ofdirectors. 3. An insurer must not invest in shares or debentures ofan insurance or investment company over least of the following: a) 10% of its own total calculatedassets.

13. b) 2% of the subscribed share capital or debentures ofthe investee. 4. An insurance company must not invest in the sharesor debentures of a company other than an insuranceor investment company above at least thefollowing: 10% of its own total calculatedassets. 10% of the subscribed share capital or debenturesof theinvestee. An insurance company is not allowed to invest inthe shares and debentures of a privatecompany. The insurance companies are not permitted to investin funds of their policyholders outsideIndia. Check from Certificates and other details theownership of investments ,whether they are in the name of company ornot. Check the method of accounting ofinvestments, whether it is appropriate for thecompany. Check valuation of investment whether doneon continuous period of three years ornot. Check whether effect of impairment has been givenor not. Check whether Revaluation Reserve has been made for investment in real estate sector and cash amount tobe credited in case of higher valuation and in case of loss same should be debited in PL of thecompany. Check whether in case of impairment in investmentof securities a “ Fair Value Change Account” has been created ornot. Check whether method of accountingconsistently applied by the company year toyear. Check whether financial statementsdisclose Accounting Methods applied by thecompany. Auditor should check the action taken to dispose ofthe non-performing investments to salvagethem. Auditor should check whether there is any systemwith the Insurer to review the investments and categorisethem into performing andnon-performing. Auditor should check the decisions in investmentin primary markets on equities anddebts.

14. Auditor should ensure that an insurer should not outof the controlled fund / assets invest or keep invested in the shares or debentures of any one company more than the exposure prescribed in Regulation 9 above, provided that nothing in this regulation shall apply to anyinvestment made with the previous approval of the Board of the Authority by an insurer, being a company with a view to forming a subsidiary company carrying on insurance /re- insurancebusiness. Where an investment is in partly paid-up shares,the uncalled liability on such shares shall be added to the amount invested for the purpose of computingexposure norms. Auditor should ensure the exposure limit forfinancial and insurance activities (as per Section K of NIC classification – 2008, as amended from time to time) should stand at 25per cent of investment assets forall insurers. Investment in Housing Financing Companiesand Infrastructure Financing Companies (except investment in Bonds / debentures of HUDCO, NHB and onlybonds issued by Housing Finance Companies having a rating of not less than AAA, and investment in Debt, Equity in dedicated infrastructure financing entities forming part of Infrastructure sector) shall form part of exposure to financial and insurance activities (as per Section K ofNIC classification –2008). Auditor should check that Investment Property within the meaning of Accounting Standards, and coveredunder Regulation 3 (a) (6) shall not exceed, at the timeof investment, 5 per cent of Investment Assets in the caseof general insurer held as ‗investment property‘ should not be for ‗self-use‘. Immovable property, for self-use, should be purchased only out of share-holders funds, and should comply with circular / guidelinesissued. Auditor should ensure that Investment in securitized assets [Mortgaged Backed Securities (MBS) / Asset Backed Securities (ABS) / Security Receipts (SR)] both under approved and other investment category shall not exceed 5 per cent of Investment Asset in the case of General companies. Approved Investment in MBS / ABS with underlying Housing or Infrastructure Assets and not more than 5per cent of investment assets in the case of General Insurance companies. Any MBS / ABS with underlying housing or infrastructure assets, ifdowngraded below AAA or equivalent, shall be reclassified as Other Investments. Auditor should ensure that Investment Committee should at least on a half-yearly periodicity evaluate therisk of such investments and take necessary correctiveactions where the parent company (ies) is floating more than one SPV.

15. 24. Auditor should ensure whether at the time of investing, subject to group/ promoter group exposure norms, investa maximum of 20per cent of the project cost (as decided by a competent body) of an Public Limited Special Purpose Vehicle (SPV) engaged in infrastructure sector (or)amount under Regulation 9 (B) (i), whichever is lower, as a part of Approved Investmentsprovided: such investment is inDebt the parent company guarantees the entiredebt extended and the interest payment ofSPV. the principal or interest, if in default and if notpaid within 90 days of the due date, such debt shall be classified under otherinvestments. the latest instrument of the parent company (ies)has (have) rating of not less thanAA such guarantee of the parent company (ies) shouldnot exceed 20per cent of net worth of parent company(ies) including the existing guarantees, if any, given the net worth of the parent company (ies), if unlisted, shall not be less than Rs. 500 crores or where theparent company (ies) is listed on stock exchanges having nationwide terminals, the net worth shall not be lessthan Rs. 250Crores. Auditor should check that matured investmentswere properly encashed and reinvested properly on the due date to avoid loss ofinterest. Auditor should check the money market transactions and the investment and disinvestment decisions forday-to- dayoperations. Auditor should check all the contracts on the sale/purchase of securities in the market from thedealers and ensure that only the ordered quantity of investments was purchased andsold. Auditor should check the appointment of dealersof investments for day-to-dayoperations. The Internal Auditor should check whether the decisions taken on investment or disinvestmentwith reasons were properlyminuted. Auditor should check whether theInvestment Committee meet frequently to oversee theinvestment operations. check whether the proceedings of theInvestment Committee were recorded andminuted.

16. 32. Auditor should check whether the back office, middle office front office functions and accounting functions were segregated by the insurer. Moreover, he should checkthat these functions should not be outsourced. If not,comment on theimpact. a) Real Estate Investments The Auditor shallverify 1. Investment property has been measured atHistorical Cost less Accumulated Depreciation and ImpairmentLoss( Residual value being considered as zero andnot revaluation ispermissible). The insurer has assessed at each Balance/Sheetdate any impairment in investedproperty. Impairment losses are recognized as expenses inthe Revenue/Profit and Loss Accountimmediately. Profit on revaluation of real estate investments shall be credited in Revaluation Reserve Account of the insurerand this is a CashReserve. Whether disclosures of Fair Market Valueof investment have been made in Notes to the Accountsof theinsurer. b) DebtSecurities The Auditor should confirm that the debt securities including Government Securities and Redeemable Preference Shares have been considered ” Heldto Maturity” securities and valued at Historical Costless impairment ifany.

17. c) Equity Securitiesand Derivative Instruments that are traded actively in activemarket. The Auditor shallverify; 1. Whether the listed equity securities andderivatives instruments that are traded in active markets havebeen measured at Fair Market Value as at the Balance/Sheet date. Whether the insurer has assessed on each Balance/Sheet date whether any impairment oflisted equity security/derivative instruments hasoccurred. Whether unrealized loss/gain arising in changes in Fair Value of listed shares and derivative instruments have been taken to Equity Portion of Balance sheet underhead “ Fair Value ChangeAccount”. Whether profit on sale of investment or loss , as the case may be includes accumulated changes in FairValue previously recognized in Equity under the “ FairValue Change Account” in respect of a particular security and being recycled to Profit/Loss Account on actual sale ofthat listedsecurity. the debit balance in the “Fair Value ChangeAccount” has been reduced from the profits/free reserves while declaringdividends. Whether company has assessed if any impairmentheld on each Balance/Sheet date ornot. The impairment loss has been recognized as an expense in Revenue/PL to the extent difference between the remeasured Fair Value of the Security/Investment and its acquisition cost as reduced by any previousimpairment loss recognized as an expense in the Revenue/PL Account. Whether any reversal of impairment loss,earlier recognized in Revenue/PL Account has beenrecognized in Revenue /PLAccount. d) Unlisted and other than actively traded Equity Securitiesand DerivativeInstruments. The Auditor shallverify; Whether unlisted securities or derivative instrumentsnot actively traded on stock exchange has been valuedat Historical Cost less impairment loss if any in the booksof accounts. CONCLUSION:we are aware that the main activities of an Insurance companyis receipt of Premium, payment of claims and Investment of Funds. An insurancecompany may outsource its functions to third parties except its Core Activities. There are many functions of an insurance companies which are not relevant has not been considered in above checklist. The Checklist produced here can be used in both Internal as well as StatutoryAudits.

18. DISCLAIMERThe content/information presented here is only for general information of the user and shall not be construed as legal advice. While the author hasexercised reasonable efforts to ensure the veracity of information/content presented ,author shall be under no liability in any manner whatsoever for incorrect information, ifany. Tags: i nsurance act, i nsurancesector Kindly Refer to Privacy Policy & Complete Terms of Use andDisclaimer. AuthorBio Name: CS DeepakP.Singh Qualification: CS Company: SBI GENERAL INSURANCE COMPANYLIMITED Location: MUMBAI, Maharashtra, India Member Since: 25 Aug 2018 | Total Posts:311 A Qualified Company Secretary, LLB , LIII , Bsc( Maths) BHU, Certification in Insurance Risk Management ( ICSI-III) have completed Limited Insolvency Examination andhaving more than 20 years of experience in the field of Secretarial Practice, ProjectFinance, Direct Taxes ,GST, Accounts & F View FullProfile My PublishedPosts SEBI grants relaxation from sending hard copies of annualreport Concept of Angel Tax & Taxability under Income Tax Act1961 Tax on appreciation in value of foreign assets held by Insurance Companiesconsequent to devaluation of rupee Section148 Notices not become invalid merely for issue under old law:SC Permission under FEMA Required to Offer Securities to Companies ofNeighbouring Countries View More Published Posts Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects. Join us onWhatsapp

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