Presentation on theme: "Roundtable Meeting on Compliance Aspects of Accounting, Auditing and Regulatory Requirements of Insurance Companies 6 th November, 2007 Hyderabad."— Presentation transcript:
Roundtable Meeting on Compliance Aspects of Accounting, Auditing and Regulatory Requirements of Insurance Companies 6 th November, 2007 Hyderabad
Enhancing the Credibility of External Financial Information: Auditing Issues Mamta Suri Deputy Director IRDA
Section 12, Insurance Act 1938: Insurance Company to be Audited annually by the Auditors. Clause 3(4) of Regulations 2002: The Authority may issue separate directions/ guidelines on auditors. Statutory Provisions
Directions /Guidelines for Auditors Authority may issue direction/guidelines for Appointment Appointment continuance or continuance or Removal Removal Directions/guidelines may include prescriptions regarding Qualification of and experience of auditors Qualification of and experience of auditors Rotation Rotation Period of appointment Period of appointment
Instructions Issued by IRDA February, 2001: Circular issued on the qualification, rotation etc. - Maintained a panel of auditors up to 2005-06. July, 2005: Issued fresh guidelines: (a) constraints in verifying & processing applications received; and (b) Need to provide more opportunities to eligible audit firms.
Directions given by the Authority February 2001 a. Auditors shall be a firm b. The firm should have continuous practice of 15 years or more c.The firm should have minimum 5 partners - 2 must be in the firm for > 10 years Joint Audit - with term of 4 and 5 years at first instance and after that auditors shall be retained for 5 years.
Revised Guidelines w.e.f. 2006-07: Authority not to maintain panel of auditors Prescribed requisite qualifications for firms Insurance companies responsible for selection of audit firms Audit firms to submit details to insurance companies by way of self declaration confirming: (a) constitution of the firm; and (b) absence of any pending disciplinary cases against them. Authority to be informed of the appointment within one week
Eligibility Conditions 1) Auditor of Insurance company to be a firm; 2) In continuous practice for a period of 15 years or more; 3) Minimum No. of partners and their experience/ qualification.
Number of Statutory Audits One Audit firm to carry out not more than two Statutory Audits of Insurance Companies (Life/ Non life/ Re-insurer).
Rotation of Joint Auditors Two auditors on a joint audit. One Auditor: Term of 5 years Second Auditor: Term of 4 years in the first instance. Maximum duration for auditor --- 5 years. Cooling period of two years. An audit firm on completing five/four years, at the first instance, 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.
Role of the auditors The Authority attaches significant importance to the role of Auditor In case of non life companies – Additional responsibility: Solvency Ratio certified by the Auditor Solvency Ratio certified by the Auditor
Auditors Report Express opinion on the financial statements – present a true & fair view for the financial year. Are in agreement with the books of accounts and returns Prepared in accordance with the requirements of the Insurance Act, IRDA Act, Companies Act to the extent applicable Investments in accordance with the regulations Auditors to certify: Reviewed management report – is consistent with financial statements Reviewed management report – is consistent with financial statements Terms & conditions of registration complied with Terms & conditions of registration complied with Verified cash balances and securities relating to loans & investments Verified cash balances and securities relating to loans & investments Verified investments & transactions relating to trusts undertaken by the insurer Verified investments & transactions relating to trusts undertaken by the insurer Assets of policyholders funds not applied in contravention of Insurance Act. Assets of policyholders funds not applied in contravention of Insurance Act.
Issues of Concern Format of reporting as per regulations not conformed with – Segment reporting – deviations are observed Stipulations on Items of expenses and income in excess of one per cent of the total premiums (less reinsurance) or Rs.5 lakh which ever is higher – to be shown as a separate line item – not complied with Premium amounts collected and held by intermediaries: being written off as bad debts Re-grouping of previous year figures (without rationale and disclosures) Receipts and Payments Statement – Deviation – PSUs are still giving as per indirect method
Issues of Concern contd… Continued non reconciliation of balances Amounts due from and to re-insurance companies To ensure confirmation of balances are received Re-insurance premium – whether ARTs are being accounted for as reinsurance Significant accounting policies – there should be full disclosures on manner of presentation of the financials Management Report - Details of aging of claims not furnished
Summary of financials required for the previous five years Manner of computation of ratios erroneous Whether auditors are aware of the latest circulars/ letters issued by IRDA Issues of Concern contd…
Additional Responsibilities Effective 2007-08, verify compliance on rural and social sector obligations
Dual Role Not only are the statutory/ internal auditors Also have a responsibility to the Authority Also have a responsibility to the Authority Any issues which need to be discussed with/ brought to the notice of IRDA are free to walk in any time to discuss in complete confidentiality