Ms M. Singh has been appointed as an internal auditor of Life Care Insurance Ltd. She observed that few insurance policies have been sold by the company in the last month of the financial year ending 31st March, 2024. Wh

The auditor should ensure that premium in respect of risks incepting during the relevant accounting year has been accounted as premium income of that year on the basis of premium revenue recognition. The auditor, as part of her audit procedures, should make an assessment of the reasonability of the risk pattern established by the management. The auditor, Ms. M. Singh appointed as an auditor of Life Care Insurance Ltd. should ensure that policy documents have not been issued, in case: Premium had not been collected at all; Premium had been collected but the relevant cheques have been dishonoured; (refer Cheque Dishonoured Book); Premium had not immediately been collected due to furnishing of a bank guarantee or cash deposit but either the deposit or guarantee had fallen short or has expired or the premium had been collected beyond the stipulated time limit (i.e., there is a shortfall in bank guarantee account or cash deposit account of the insured); Premium had not been collected due to risk cover being increased or where stipulated limits have been exhausted in respect of open declaration policies (i.e., where premium has accrued but has not been received); and Premium collected but policies not issued for long periods of time. Whether the premium received during the year but pertaining to risk commencing in the following year has been accounted for under the head 'Premium Received in Advance' and has been disclosed separately. The premium collections are credited to a separate bank account and no withdrawals are normally permitted from that account for meeting the general expenditure. As per the policy of the insurance company, the collections are transferred to the Regional Office or Head Office. No Risk shall be assumed by the insurer without receipt of premium according to section 64VB of the Insurance Act, 1938. Verification of premium is of utmost importance to an auditor because Insurance premium is collected upon issuing policies. It is the consideration for bearing the risk by the insurance company. The auditor should apply the following procedures: Before commencing verification of premium income, the auditor should look into the internal controls and compliance which are laid down for collection and recording of the premiums. Cover notes should be serially numbered. The auditor should check whether Premium Registers have been maintained chronologically, giving full particulars including GST charged as per acceptance advice on a day-to-day basis. The auditor should verify whether the figures of premium mentioned in the register tally with those in General Ledger. The auditor should verify whether instalments falling due on or before the balance sheet date, whether received or not, have been accounted for as premium income as for the year under audit.