Ans. 2.

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 his audit procedures, should make an assessment of the reasonability of the risk pattern established by the management. The auditor, CA Vardhman appointed as an auditor of Life Reliable Insurance Ltd. should ensure that policy documents have not been issued, in case:

(i) Premium had not been collected at all;

(ii) Premium had been collected but the relevant cheques have been dishonoured; (refer Cheque Dishonoured Book);

(iii) 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);

(iv) 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

(v) instalments of premium have not been collected in time in respect of certain categories of policies, e.g., marine-cum-erection policies where facility has been granted for premium being paid in instalments (such facility is normally available subject to certain conditions, e.g., that the first equated instalment is more by 5 per cent of the total premium payable by instalments).

(vi) Premium collected but policies not issued for long periods of time.

(vii) 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.

​

​