BM2110
RISK-BASED AUDIT PROCESS (15 points: 3 items x 5 points)
Direction: In no more than five (5) sentences, discuss the process of auditing the following
transactions/accounts:
Underwriting
Under PFRS 17 – Insurance Contract, underwriting is the process through which
an individual or institution takes on financial risk for a fee and the process can be face
pitfalls like policies may be processed twice, fictitious premiums, incorrect coding,
unrenewed policies being billed, missed postings and etc. In auditing controls are
checked to address these pitfalls, such as underwriter verification of applications,
automatic premium dating, cash receipt reconciliation, and etc. Substantive procedures
may be done specifically in the gross premiums written, auditors verify premium
existence by sampling records, ensuring they reflect actual transactions. They conduct a
premium cutoff test by auditing samples from the 30-day period around fiscal end to
check timing accuracy, and perform analytical procedures to assess income account
changes for unexpected variances. Lastly, auditors reconcile the premium register to the
general ledger, investigating any unusual items or discrepancies within the testing
threshold.
Reinsurance
It is an insurance contract issued by one entity to compensate another entity for
claims arising from one (1) or more insurance contracts issued by that other entity. In the
Philippines, facultative reinsurance covers single risks individually underwritten by the
reinsurer, often leaving the ceding company with riskier policies, while treaty reinsurance
covers entire classes of policies without individual underwriting. Possible pitfalls in
reinsurance include unauthorized company offers, duplicate processing, unrecorded
policy adjustments, coding errors and etc. To address these pitfalls, companies should
maintain an approved list of ceding companies, require reinsurance head approval on
offer slips, and etc. Substantive procedures include reconciling reinsurance premiums
with general ledger control accounts, investigating unusual items, analyzing reinsurance
premium trends, and comparing current premiums to previous periods to identify
unexpected variances. These steps aim to verify that all reinsurance transactions are
complete, accurately recorded, and compliant with guidelines.
Claims processing
It refers to the insurance company’s procedure to check the claim request for
adequate information, validation, justification, and authenticity. At the end of this
process, the insurance company may reimburse the money to the healthcare provider in
whole or in part. Common pitfalls include unauthorized claims, duplicate payments,
claims outside policy coverage, outdated loss reserves, unrecorded or fictitious claims,
and missing reinsurer’s shares. To address these, auditors conduct substantive
procedures, including verifying outstanding claims against the general ledger, sampling
and testing key data for accuracy, and ensuring correct period entries. They also
compare reserves to adjuster reports to ensure accuracy. These steps help confirm that
claim transactions are legitimate, timely, and accurately recorded.
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BM2110
Rubric for grading the essay:
CRITERIA PERFORMANCE INDICATORS POINTS
Content Provided pieces of evidence, supporting details, and factual scenarios. 3
Organization of Ideas Expressed the points in a clear and logical arrangement of ideas in the 2
paragraph
TOTAL 5
07 Activity 1 *Property of STI
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