AUDIT OF INSURANCE COMPANIES

Agenda
➢ AUDIT WORK PROGRAMS
▪ Risk assessment process
▪ Test of controls
▪ Test of details
➢ INDEPENDENT AUDITORS’ REPORT
Audit Work Program
Risk Assessment Process

IT General Controls

Application, Database, Operating System and Network

Automated Life Insurance System

IT Entity-Level Logical Access Program Change Other IT

Controls Security Management Operations

Financial Statements
Audit Work Program
Risk Assessment Process
Key Audit Areas (Primary Controls for Observation)

IT Entity-level Controls Other IT Operations

✓Back-up and Recovery

Logical Access Management
✓Network Operations Management
✓Job Scheduling
✓Third-party IT Providers
Change Management ✓Physical and Environmental Security

Key Audit Subjects (Primary Objects for Observation)

IT Organization Application System Databases Operating System Network

Audit Work Program
Test of Controls
KEY CONTROLS TESTED – Premium Revenue
PREMIUM REVENUE
Is the control
Risk No. Risk Description Control Description Process Owner operating
effectively?
The Underwriter reconciles the premium appearing in the scrutiny and
route sheet prepared by New Business Staff with that appearing in the
Premium revenue may be understated or overstated depending on the effect of
1 the unreconciled premium balance appearing on the scrutiny route sheet and the
illustration of benefits (IOB)* prepared by the Agent. A checking of the
Underwriter
Yes
correctness of data encoded is made by using tickmarks on the
illustration of benefits.
scrutiny and route sheet which indicates that the Underwriter has
matched the information from route sheet, to IOB and to the system.
In case the Applicant is classified as substandard, it must be further
Yes
2 evaluated by the AVP for Underwriting and, if medical examination is
There is a risk that the Underwriter may erroneously classify the Applicant as AVP for Underwriting and/or
required, by the Medical Director. Their approval through a signature
substandard to increase the premium revenue. Medical Director
on the scrutiny and route sheet is necessary to proceed with
substandard application.
Only clients with first modal payments are tagged as “In-Force”. The
3 Premium revenue and receivable may be overstated as In-Force policyholders are Yes
status is changed automatically in the system upon receipt of first
prepared with premium notices to signify the Company's billing on scheduled Collection Supervisor
payment through the Cashier, reviewed by the Encoder, and posted by
insurance premiums.
the Collection Supervisor after approval.
The parked entry to record cash collections (premium revenue, commission, Yes
4 agent's balance, and premium revenue) may be understated or overstated if the The collection summary report is matched to the attached official
collection summary report is not reconciled with the attached official receipts and receipts by the Encoder and signifies the review process by indicating Encoder
deposit slips which may arise due various factors such as cancelled receipts, a signature on the collection report.
encoding error, and lack of supporting documents.
The Collection Supervisor reviews the encoded entries by ensuring
that it is tied-up with actual collections received by referencing the Yes
5 A risk may arise due to erroneous journal entry parked by the Encoder which
entries to the amount in collection report, official receipts and deposit
would have an impact on the recorded Cash, Commission expense , Agent's Collection Supervisor
slips (if paid through banks). If the Supervisor is satisfied, he will then
balance, and Premium revenue.
post the entries signifying that the collections and official receipts are
tied-up and the journal entry prepared by the Encoder is accurate
Audit Work Program
Test of Controls
KEY CONTROLS TESTED – Expenses (Death Claims)

DEATH CLAIMS
Is the control
Risk Process
Risk Description Control Description operating
No. Owner
effectively?
The PSD staff shall verify in the AutoLIS if the insured's policy is
1 The claimant may not have the right to
In-Force and the completeness of the submitted requirements of PSD Staff Yes
claim or receive the benefit.
the claimant to proceed with the processing of the claim.
The amount computed may not be accurate The Death Claim Data Sheet (DCDS) should be equal to the
2
Claims'
as to the amount claimants were entitled to Policy Holder's Information Summary (PHIS) and is verified by Yes
Committee
receive. the Claims' Committee.
VP-PSD,
3 Duplicate payments may occur and The RFP should be checked by the VP-PSD, reviewed by the Accounting
Yes
amounts may not be properly recognized. Accounting Manager and approved by the President. Manager and
President
Audit Work Program
Test of Controls
KEY CONTROLS TESTED – Expenses (Commission)
COMMISSION
Is the
Risk control
Risk Description Control Description Process Owner
No. operating
effectively?
Basic and overriding commission rates used should be properly
1 Commission expenses may be overstated or understated Agency Services
traced to the commission schedule and amounts of basic and Yes
based on the rate used by the Agency Services Staff. Staff
overriding commissions in RIC are accurate (Recomputation).
The amount to be disbursed for commission may be The Request for Issuance of Check (RIC) prepared by the Agency
2 Agency Services
erroneously entered by the Agency Services Staff which may Services Staff is reviewed and signed by the Agency Services Yes
Head
understate or overstate cash. Head.
The amount to be disbursed for commission may be
3 The RIC forwarded to Collection Staff is reviewed (signified by
erroneously entered by the Agency Services Staff which may Collection Staff Yes
tickmarks) and signed by the Collection Staff.
understate or overstate cash.
Upon creation of the commission voucher, the Disbursement
Officer may erroneously encode details which would result to
4 Commission Voucher prepared by the Disbursement Staff should Disbursement
understating or overstating the parked entry to be made in the Yes
be equal to RIC and is reviewed by the Disbursement Supervisor. Supervisor
system to record VAT, Overriding commissions, Withholding
Tax, Agents’ Fund, and cash accounts.
Check Voucher prepared by the Disbursement Staff is checked
5 Duplicate payments may occur and amounts may not be Disbursement
and signed by the Disbursement Supervisor and is equal to the Yes
properly recognized. Supervisor
Commission Voucher.
Audit Work Program
Test of Controls
KEY CONTROLS TESTED – Financial Statement Closing Process
FSCP
Is the control
Risk
Risk Description Control Description Process Owner operating
No.
effectively?
Schedules are manually summarized by the
Review and tie-up of figures are made by the Chief Accounting
1 Accounting Manager to produce the trial Yes
Accountant before the closing of the books. Manager
balance each month.

The Company maintains three (3) books of accounts, namely: (a) Cash Receipts Book, (b) Cash Disbursements
Book, and (c) Journal Voucher Books. As per testing, the following amounts were traced from the books and
ultimately to the Trial Balance as at September 30, 2021:
CRB* CDB* JV*
Assets 136,989,192 (117,225,536) (56,164,220)
Liabilities (45,314,965) 101,589,137 64,407,288
Revenue (101,874,040) (415,825) (83,281,206)
Expenses 10,199,813 16,052,224 75,038,138
*Based on September 2021 books
Audit Work Program
Test of Details
ACCOUNT ANTICIPATED ISSUES ACTION PLANS

A. Cash and Cash Equivalents • Completeness of bank reconciliation and recording • Review and examination of bank reconciliations
of book reconciling items (including completeness of outstanding checks
and deposits in transits)
• Unreconciled bank reconciliations • Obtain bank confirmation of bank accounts

• Valuation of cash and cash equivalents • Review of interbank transfers

denominated in foreign currency
• Review of negative balances
• Unreleased checks considered as outstanding
checks

B. Insurance Receivables and • Probability of collections of receivables • Obtain confirmation to customers

Reinsurance Assets • Obtain subsequent collection of insurance
• Recoverability of receivables on paid losses receivable

• Adequacy of allowance for doubtful accounts • Check Company’s assessment of adequacy of

allowance for doubtful accounts. Assessment
• Overstatement of receivables (amounts due from should be made both on a specific identification
and collection basis (considering age of the
and funds held by ceding companies) accounts)

• Assess the credibility of the ceding companies

Audit Work Program
Test of Details
ACCOUNT ANTICIPATED ISSUES ACTION PLANS

C. Financial Assets and • Ownership and rights over the financial assets • Obtain confirmation of ownership from investees
Investment Income
• Obtain available market prices on quoted
• Completeness of financial assets securities and review client’s assessment for
impairment on unquoted securities
• Valuation of quoted and unquoted AFS financial
assets • Obtain impairment assessment by management
and check its reasonableness.
• Interest rate risks associated with HTM
• Review Company’s recognition of income and
investments expenses in relation to financial assets
• Assessment of impairment losses on recognized
loans and receivables
D. Property and equipment • Existence of property and equipment • Obtain a schedule of property and equipment
and inspect evidence of ownership (e.g., titles for
real property and registration certificates for
• Incorrect costing of property and equipment vehicles) or rights to use the asset (i.e., capital
leases). Establish acquisition cost by reference to
• Overstated property and equipment and deed of absolute sale, construction contract or
understated depreciation and amortization any agreement, if applicable.
expense
• Review capitalization policy
• Reasonableness of estimated useful life of property • Test reasonableness of useful lives and
and equipment depreciation method
Audit Work Program
Test of Details
ACCOUNT ANTICIPATED ISSUES ACTION PLANS

E. Premiums, Claims and • Revenue recognition and policies on premiums • Review Company’s policies and procedures over
revenue and collection process
Commissions sold
• Review Company’s process on the projection of
• Accounting and valuation of claim costs future claim costs

• Tax implications of collected and uncollected • Review of Company’s assessment of loss

commission income adjusters in case of large claims

• Review Company’s documentation of changes in

• Documentation of changes in commission rates, if commission rates to have an audit trail that
any correct rates are being used.

• Matching of cost and revenue • For sales transactions, test of controls on sales
reports which will be covered in the review of
FSCP. Test may include matching of sales report
vis-à-vis bank validated deposit slips representing
collection on the day and other supporting
documents.

• Ensure proper matching of revenue and cost in

the same reporting period

• Proper cut-off procedure on revenue

Audit Work Program
Test of Details
ACCOUNT ANTICIPATED ISSUES ACTION PLANS
F. Insurance and other • Completeness of insurance policies • Test objectivity, independence, and competence
liabilities of actuary
• Appropriateness of assumptions and valuation • Perform list-to-floor and floor-to-list test of
methodology insurance policies

• Over/under accrual of expenses. • Review assumptions used in the valuation and

test consistency with IC rules and regulations
• Proper documentation and disclosure of
• Validate details of insurance liabilities by
transactions. checking insurance contracts and other
supporting documents.
• Exposure on nonpayment of statutory liabilities.
• Review accrued expenses and check subsequent
payments to ensure accrual of expenses in the
correct period (e.g. payroll, utilities and rent,
among others).

• Review filings made to the BIR particularly on

income tax, VAT and withholding taxes and
determine level of compliance and quantify tax
exposures, if any.
Audit Work Program
Test of Details
ACCOUNT ANTICIPATED ISSUES ACTION PLANS

G. Revenue • Under/over recording of revenue. • Based on the result of risk assessment and test of
controls, select samples for testing and inspect
insurance contracts, statement of accounts and
• Cut-off recording. official receipts.
• Reconciliation with tax returns. • Review transactions before and after cut-off
date.

• Inspect tax returns and reconcile amounts

declared.

H. Expenses • Under/over recording of expenses. • Test significant expenses support such as payroll,
supplies, utilities, transportation and travel and
depreciation by examining underlying
• Cut-off recording. documents. Underlying documents may include
payroll register billings from suppliers, among
• Reconciliation with tax returns. others.

• Review Company’s withholding tax forms.

• Inquire about the Company’s policy on

withholding taxes and other tax related payables.
Independent Auditors’ Report
Basis for Opinion
AUDIT ISSUES OPINION
Impairment of assets such as investments or • Qualified / Adverse / Disclaimer
insurance receivables

Misstatement of insurance contract • Qualified / Adverse / Disclaimer

liabilities

Unable to obtain sufficient appropriate • Qualified / Disclaimer

audit evidence to test the insurance
contract liabilities

Material uncertainty related to going • Material Uncertainty Paragraph /

concern Qualified / Adverse / Disclaimer
Thank you
for your time
and attention!