Auditing and Ethics · Special Features of Audit of Different Type of Entities

Audit of Insurance Companies for CA Intermediate

Updated 4 October 2026 · Fact-checked

An insurance company is audited under the Companies Act, 2013 and the insurance regulatory framework (Insurance Act, 1938, IRDA Act, 1999 and IRDAI regulations on financial statements and audit). The auditor tests premium, claims, investments and reserves, relies on the appointed actuary for policy liabilities, and reports in the prescribed format, including IRDAI-specific matters.

Understand Audit of Insurance Companies

An insurance company takes premium today and promises to pay claims later. So its big numbers are estimates: unexpired risk, claims not yet settled, and policy liabilities for life business. That is why this audit differs from a trading company audit.

Insurance is a regulated business. The Insurance Act, 1938 and the IRDA Act, 1999 set the framework. The IRDAI (Insurance Regulatory and Development Authority of India) issues regulations on the preparation of financial statements, investments, solvency and the appointment of auditors. Companies Act, 2013 applies to the extent it is not inconsistent with these laws. Financial statements follow the IRDAI regulations and formats, not Schedule III.

The statements have special parts. Common ones are the Revenue Account (for each class of business, such as fire, marine, miscellaneous in general insurance, and the policyholders' account in life), the Profit and Loss Account (shareholders' account) and the Balance Sheet. Premium, commission, claims, reserves and investment income flow through the revenue account first.

The auditor must plan around the key risks. These are: premium recognised in the wrong period, reinsurance not properly accounted for, claims under-provided or unrecorded (including claims incurred but not reported, IBNR), investments valued or classified wrongly, and policy liabilities that depend on actuarial assumptions.

The appointed actuary (for life insurers) or the actuary for general insurers certifies policy liabilities and reserves. The auditor is not an actuary. Under SA 620 the auditor uses the actuary as an auditor's or management's expert: evaluate competence, capability and objectivity, understand the work, and assess whether the output is appropriate. Reliance does not remove the auditor's responsibility for the opinion.

Key rules to remember

Governing framework: Insurance Act, 1938 + IRDA Act, 1999 + IRDAI regulations + Companies Act, 2013 (to the extent not inconsistent); Say this first in a theory answer. Financial statements follow IRDAI formats, not Schedule III.
Premium earned: Premium earned = Premium written (net of reinsurance) ± change in reserve for unexpired risks; Premium is recognised over the policy period. Check cut-off and the unexpired risk reserve.
Claims incurred: Claims incurred = Claims paid + closing outstanding claims (including IBNR) − opening outstanding claims; Net of reinsurance recoveries. A common source of understatement.
Use of actuary: Evaluate competence, capability, objectivity → understand work → assess appropriateness of output (SA 620); The auditor relies on the actuary's valuation but keeps responsibility for the opinion.
Audit evidence on investments: Existence (custody, confirmation) + ownership + valuation + classification + income; Investments are held to match policy liabilities and follow IRDAI investment norms.

How to solve Audit of Insurance Companies questions

Use this method for any question on auditing an insurance company, whether it asks about premium, claims, investments or the actuary.

1Open with the framework: Companies Act, 2013, Insurance Act, 1938, IRDA Act, 1999 and IRDAI regulations on financial statements and audit.
2Identify the area asked: premium, claims, reinsurance, commission, investments, or actuarial liabilities.
3State the key risk in that area, for example cut-off for premium or under-provision for claims.
4List the audit procedures in order: understand controls, test records, vouch to documents, confirm with third parties, recompute.
5Where estimates are involved, bring in the actuary and apply SA 620: competence, objectivity, understanding the work, evaluating output.
6Check compliance with IRDAI rules, such as investment norms and the prescribed disclosures, and note reporting duties.
7Close with the conclusion: what the auditor reports or modifies if the evidence is not adequate.

Quickest way: Area, risk, procedure, actuary

When to use it: Use for 4 to 6 mark written answers and for MCQs on insurance audit.

Write the area as a heading, for example Premium.
Write the risk in one line.
Give 3 to 5 procedures as bullets, each starting with a verb: verify, test, confirm, recompute, review.
Add the actuary or IRDAI link in one line if the area involves estimates or investments.
For MCQs: if the option says the auditor takes over the actuary's responsibility, eliminate it. If it says IRDAI formats are replaced by Schedule III, eliminate it. If it says reliance on an expert removes the auditor's responsibility, eliminate it.

Common mistakes in Audit of Insurance Companies

Saying the insurance company's statements are prepared under Schedule III of the Companies Act.
Students treat every company the same way.
Fix: State that IRDAI regulations and prescribed formats apply, with the Companies Act applying to the extent not inconsistent.
Writing that the auditor values policy liabilities.
Students forget that this is the actuary's field.
Fix: Say the actuary values the liabilities and the auditor evaluates the actuary's competence, understands the work and assesses the output under SA 620.
Saying that relying on the actuary removes the auditor's responsibility.
Confusing use of an expert with transfer of responsibility.
Fix: State that the auditor alone is responsible for the opinion and does not refer to the expert's work in an unmodified report.
Ignoring cut-off and the unexpired risk reserve in premium audit.
Students treat premium like sales and just vouch invoices.
Fix: Add cut-off testing near the year end and check that premium is recognised over the policy period.
Forgetting unrecorded claims and IBNR when auditing claims.
Focus is only on claims paid.
Fix: Always include outstanding claims, claims intimated after year end, and the IBNR estimate, net of reinsurance recoveries.

Worked examples

Example 1

Explain the audit procedures you would follow for premium income of a general insurance company.

Show the solution

Framework: the accounts follow IRDAI regulations and formats. Premium is accounted for per the regulations and applicable standards.
Risk: premium may be recorded in the wrong period or class, or may not be recorded at all.
Understand and test controls over policy issue, premium collection and recording, including IT controls.
Vouch a sample of premium entries to proposal forms, policy documents and receipts.
Test cut-off near the year end so that premium is in the right period, and check the reserve for unexpired risk.
Check premium by class of business and the treatment of reinsurance ceded and accepted.
Check that commission and any premium deficiency are properly accounted for.

Answer: The auditor verifies premium by understanding controls, vouching samples to policies and receipts, testing cut-off and the unexpired risk reserve, checking classification and reinsurance, and confirming compliance with IRDAI requirements.

Example 2

A life insurer's policy liabilities are certified by the appointed actuary. Explain how the auditor should treat this certificate.

Show the solution

Provision: policy liabilities depend on actuarial assumptions, which require specialised skill the auditor does not have.
The actuary acts as an expert, so SA 620 applies. The auditor evaluates the actuary's competence, capability and objectivity.
The auditor obtains an understanding of the actuary's work, including data, assumptions and methods.
The auditor checks that the data given to the actuary is complete and accurate, and that the assumptions are reasonable and consistent with the previous year.
The auditor evaluates whether the results are appropriate evidence, and discusses significant differences with the actuary or management.
Conclusion: the auditor may rely on the certificate if satisfied, but remains solely responsible for the opinion. If the evidence is not sufficient, the auditor considers modifying the opinion.

Answer: The auditor may rely on the actuary's valuation after evaluating competence and objectivity, understanding the work and assessing the data and assumptions under SA 620. Responsibility for the audit opinion stays with the auditor.

Exam tips

Begin every theory answer with the legal framework in one line. It earns easy marks.
Link every estimate-based area (claims, reserves, policy liabilities) to the actuary and SA 620.
Use bullets that start with a verb. Examiners look for specific procedures, not general statements.
In MCQs, watch for options that say the auditor is not responsible when an expert is used. They are wrong.
Do not quote section numbers or IRDAI regulation names unless you are sure of them. State the rule in words.

Practice questions from Special Features of Audit of Different Type of Entities

Audit of Insurance Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Audit of Insurance Companies: frequently asked questions

Which law governs the audit of an insurance company?

The Companies Act, 2013 applies along with the Insurance Act, 1938, the IRDA Act, 1999 and IRDAI regulations. Where they differ, the insurance laws and IRDAI regulations prevail for the matters they cover.

What is the role of the actuary in an insurance audit?

The actuary values policy liabilities and reserves using assumptions about mortality, claims and interest. The auditor evaluates the actuary's competence and work under SA 620 and then uses the result as audit evidence.

What are the main audit risks in an insurance company?

Premium cut-off errors, under-provision for claims including IBNR, wrong reinsurance accounting, investment valuation and misstated actuarial liabilities. These are the usual themes in exam questions.

Can the auditor depend fully on the actuary's certificate?

No. The auditor can rely on it after evaluating the expert and the work, but the audit opinion remains the auditor's own responsibility.