Page 229 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes vested in, and discharge the duties and be subject to the liabilities and penalties imposed on
auditors of companies under the Companies Act, 1956.
The provisions of Section 12 of the Insurance Act, 1938 apply only in a case where the financial
statements of the insurer are not subject to audit under the Companies Act, 1956. A company
carrying on general insurance business is subject to audit requirements laid down under the
Companies Act, 1956.
The financial statements under section 12 include Balance Sheet, Profit and Loss Account and
Revenue Account. Section 12 of the Insurance Act, 1938 does not cover the requirement for audit
of the Receipts and Payments Account of an insurer. It may be noted that the Insurance Regulatory
and Development Authority Act, 1999 inserted a new sub-section (1A) in Section 11 of the
Insurance Act, 1938. The sub-section has an overriding effect over sub-section (1) of section 11
that prescribed the financial statements to be prepared by an insurer. The new sub-section
requires that after the commencements of IRDA Act, 1999, every insurer, in respect of insurance
business transacted by him and in respect of his shareholders funds, should prepare, at the end
of each financial year, a Balance Sheet, a Profit and Loss Account, a separate Account of Receipts
and Payments and a Revenue Account in accordance with the regulations made by the IRDA.
Since Receipts and Payments Account has been made a part of financial statements of an insurer,
it is implied that the Receipts and Payment Account is also required to be audited.
The Authority, in exercise of the powers conferred by the Insurance Act, 1938, issued the IRDA
(Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations,
2000. These Regulations require the auditor of an insurance company to report whether the
Receipts and Payments Account of the insurer is in agreement with the books of account and
returns. The auditor is also required to express an opinion as to whether the Receipts and
Payments Account has been prepared in accordance with the provisions of the relevant statutes
and whether the Receipts and Payments Account gives a true and fair view of the receipts and
payments of the insurer for the period under audit. This also implies that the auditor is required
to audit the Receipts and Payments Account of the insurer.
Appointment of Auditors: The appointment of statutory auditors in the General Insurance
Corporation of India, and its subsidiaries and the divisions is made by the Comptroller and
Auditor General of India, as in the case of other public sector undertakings. The appointment of
auditors of the agencies abroad is made by the Board of Directors of each company.
Rights and Duties of Branch Auditors: It is a practice that the divisional offices prepares a trial
balance in a manner that it provides information required to be included in the various formats
of financial statements prescribed in the Insurance Act. Each trial balance, in which are
incorporated the figures relating to the branches of the divisions, is required to be audited and
the report thereon is furnished to the statutory auditors. The divisions of the companies carrying
on general insurance business are treated for the purposes of the Companies Act, 1956 as their
branches. It follows that the branch auditors appointed to conduct the audit of the divisions have
the same rights and obligations under the statute as those of the, statutory auditors to whom
they are expected to submit their report.
Auditors’ Report: The Authority has prescribed the matters to be dealt with by the Auditors’
Report vide Regulation 3 under Schedule C of IRDA (Preparation of Financial Statements and
Auditor’s Report of Insurance Companies) Regulations, 2000.
Tax Audit: It is necessary for general insurance companies to get their accounts audited under
Section 44AB of the said Act. For this purpose, the tax auditor(s) may be appointed by the
company itself by means of a resolution of the Board of Directors or by the Chairman/Managing
Director if so authorised in this behalf. The company is expected to fix separate remuneration for
the auditor(s) appointed for this purpose. The Form of tax audit report applicable would be

224 LOVELY PROFESSIONAL UNIVERSITY