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Unit 12: Special Features of Audit

Form 3C and the prescribed particulars would have to be given in Form 3CD, in accordance with Notes
Rule 6G of the Income Tax Rules, 1962, pursuant to Section 44AB of the Income Tax Act, 1961. It
is recommended that, wherever applicable, a common audit programme be framed for statutory
audit and for certification of the prescribed particulars under the aforesaid rules for tax audit.

12.4.2 Audit Procedures

The important part of the business operations of general insurance companies comprises the
issuance of policies for risks assumed and to indemnify the insured for losses to the extent
covered by such policies. In financial terms, these operations get translated into the receipt and
recording of premiums and the recording and settlement of claims. Both premiums and claims
have a significant impact on the insurance companies’ revenues, it would be an important part
of the duty of the auditor to satisfy himself that the financial transactions involving both these
operations have been fairly and properly recorded in the relevant books of account.

!
Caution The auditor should also ensure that the legal requirements as to the disclosure of
these items are complied with in the financial statements.

The auditor’s primary objective in audit of investments is to satisfy himself as to their existence
and valuation. Examination of compliance with statutory and regulatory requirements is also
an important objective in audit of investments insofar as non-compliance may have a direct and
material affect on the financial statements. The auditor should verify the investment scrips
physically at the close of business on the date the balance sheet. In exceptional cases where
physical verification of investment scrips on the balance sheet date is not possible, the auditor
should carry out the physical verification on a date as near to the balance sheet date as possible.
In such a case, he should take into consideration any adjustments for subsequent transactions of
purchase, sale, etc. He should take particular care to see that only genuine investments are
produced before him, and that securities held by the insurance company on behalf of others
(e.g., those held as security against loans) are not shown to him as the insurance company’s own
investments.

Notes To ensure this, the auditor should – require that all investment scrips in the
possession of the insurance company – whether belonging to it or to borrowers should be
produced before him simultaneously.
The auditor should keep them under his control until he completes his checking. Normally, the
investments of an insurance company are held by the insurance company itself or a depository
(in the case of dematerialised securities other than government securities).
Investments are normally dealt with at the Head Office and not at the branches. However,
sometimes, for realisation of interest, etc. and other similar purposes, investments of an insurance
company may be held at Branch Offices also. In such cases, the auditor should examine the
record maintained at the Head Office to record details of investments held at other locations and
request the respective branch auditors to physically verify such investments as a part of their
audit. The auditor should obtain a written confirmation to this effect from the branch auditors.
In case the verification has been done on a date other than the balance sheet date, a statement
showing the reconciliation of the investments held at the time of physical verification with the
investments held as on the balance sheet date should also be obtained from the branch auditors.
The branch auditors should report whether adequate records are maintained by the branch for
the securities held by it on behalf of the Head Office.

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