Casualty Actuarial Society (CAS) Practice Exam

When auditors examine a company's records related to insurance premiums, what must they evaluate?

1. The legal framework of the audit

2. The efficiency of claim processing

3. The accounting system's record accuracy

4. The insured's industry reputation

The correct answer is: The accounting system's record accuracy

Auditors examining a company's records related to insurance premiums focus on the accounting system's record accuracy because the integrity of financial information is critical. Accurate records ensure that the premiums collected are properly accounted for and that the revenue recognized is reflective of the actual transactions. This involves scrutinizing the processes in place for recording premiums, reconciling statements, and verifying that the amounts reported align with supporting documentation, thus ensuring reliable and transparent financial reporting. In the context of auditing, the management of premium income directly affects the financial statements and solvency of an insurer. Therefore, confirming that these transactions are accurately reflected in the accounting records is essential for determining the financial health of the company and its compliance with regulatory requirements. This focus on accuracy helps auditors assess whether the company is adhering to accounting standards and principles.