Page 285 - DCOM204_AUDITING_THEORY

Unit 13: Audit of Banking and Insurance Company

10. .................................. is the actual claims paid less adjustments for reinsurance recoveries on Notes
them and provisions for claims outstanding as on the date of financial reporting.
11. A new concept called ‘Premium Deficiency’ was brought in by IRDA as a measure for
augmenting policyholders’ funds, it mandated that if the sum of expected claims costs,
related expenses etc. exceed the ................. the said excess is to be recognized as Premium
Deficiency.

13.4 Summary

A banking company requires maintaining the books of account in accordance with section
209 of the Companies Act, 1956.

The fundamental requirement of an audit, as regards reporting on statement of account
can be discharged from the examination of the internal checked and verification of assets
and liabilities by making a comparison and reconciliation of balance with those in the
year and that of amount of income and expenses by application of test checks.

The large PSBs having balance sheet size (assets + liabilities) of above ` 1 lac crore each to
exercise managerial autonomy in regard to appointment of SBAs also from the year
2008-09 onwards.

The concept of one audit firm for one PSB to continue. The consent given by an audit firm
will be treated as irrevocable
Several financial concepts came under major revision and a sea change not only in the
reporting and disclosure requirements but in the very area of concept of premium accounting
for insurance companies are: Revenue Recognition visà-vis URR provisioning; Premium
Deficiency; Investment Income bifurcation between Policyholders funds and Shareholders
funds; IBNER (Incurred but not enough reported) Claims; Cash flow under ‘Direct Method’;
Adherence to Accounting Standards with specific modifications; Concept of “Management
Report” to stress adequate disclosures; Auditors’ report – Revision in Format, etc.

Various Laws Applicable to Co-op. Banks & Co-op. Credit Societies: The Banking
Regulation Act, 1949 as modified by Banking Laws (Application to Cooperative Societies)
Act, 1965 effective from 1st March 1966 for the purpose of regulating the banking business
of certain co-operative societies and the Banking Regulation (Co-op. Societies) Rules, 1966
effective from 3rd December, 1966; the Reserve Bank of India Act; the Foreign Exchange
Management Act, 1999; the Income Tax Act, 1961 and Rules (the income is taxable, but
certain deductions are available u/s 80P); the Service Tax Act and Rules; the Bombay
Stamp Act, the Indian Stamp Act; the Indian Contract Act 1872, Transfer of Property Act
1882 & Sale of Goods Act 1930; Law of Limitation; Byelaws of the Society.

IRDA has started compiling a panel of Chartered Accountants and for the purpose, has
also prescribed certain exacting parameters for such empanelment.

13.5 Keywords

An insurance premium is the amount of money charged by a company for active coverage. The
sum a person pays in premiums, also referred to as the rate, is determined by several factors,
including age, health, and the area a person lives in.
Banking company means any company which transacts the business of banking (5(i)(c).

Banking means accepting for the purpose of lending or investment of deposits of money from
public repayable on demand or otherwise and withdraw able by cheque, drafts order or otherwise
(5 (i) (b)).

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