Insurance Principles and Practices Quiz

A written document that outlines the terms and conditions of an insurance contract.

A contract where one insurer (the reinsurer) agrees to cover the risk of another insurer (the ceding company).

The insurer that transfers a portion of its risk to another insurer.

The insurer that agrees to cover the risk of another insurer.

Insurance that covers the financial risk associated with death, illness, or disability.

All types of insurance except life insurance, such as auto, property, and liability insurance.

The income an insurance broker or agent earns from selling insurance policies.

Payments made by the policyholder to the insurer for coverage.

Accountants must only claim expertise that they actually possess.

The audit team should have enough knowledge about the insurance industry, its regulations, and accounting specifics.

Attending seminars and training ensures the audit team stays updated on insurance industry standards and regulations.

Threats to independence, like personal connections to the client, can affect objectivity in the audit.

The audit team should ensure they have sufficient qualified staff to conduct the audit properly.

The audit partner must have specific accreditation from the Insurance Commission to conduct audits in the insurance industry.

The audit manager and senior associate should have experience with insurance clients to identify key audit risks.

The audit staff should be supervised to ensure the correct execution of auditing procedures and identification of key risks.

Understanding the company's business, its environment, and its internal controls helps auditors identify risks and plan their audit effectively. This includes reviewing prior year's work, visiting the client's facilities, and studying the industry.

Auditors must ensure that the opening balances of the balance sheet accounts are accurate during the initial audit engagement. This process is called 'Test of Beginning Balance'.

Auditors need to understand how a company's internal controls work to assess the risk of errors or fraud in the financial statements. This helps them plan their audit and develop effective procedures.

Auditors should consider the company's industry, regulations, and specific accounting practices when planning their audit to understand the risks and develop appropriate procedures.

Auditors should look for potential problems or areas of concern during planning. This can help them conduct the audit efficiently and effectively.

The auditor's assessment of the risk that material misstatements may go undetected, even after conducting thorough audit procedures.

A process where the auditor evaluates the total amount of adjustments made during the audit to determine if they exceed the overall materiality threshold set for the financial statements.

The responsibility of the company's management to provide unrestricted access to records, documents, and information needed for the audit.

The arrangements regarding how the insurance company plans to pay the auditor for their work.

An official letter from the client to the auditor confirming their understanding of the audit engagement and their responsibilities.

An optional letter from the auditor to the management of the company expressing their observations, recommendations, and any significant issues found during the audit.

Arrangements concerning the involvement of independent experts in specific areas where the auditor needs specialized skills.

A formal request from the auditor to the client to confirm the terms of the audit engagement, ensuring both parties are on the same page.

The largest possible misstatement that the auditor is willing to accept in the financial statements, used to determine the scope of audit procedures.

This refers to the smallest amount of misstatement that could make the financial statements misleading to users.

This relates to the overall risk that the auditor might fail to detect a material misstatement in the financial statements.

The risk that a misstatement could occur in the financial statements due to inherent limitations in the client's internal controls.

The risk that the auditor's procedures might fail to detect a material misstatement that exists in the financial statements.

This focuses on the specific, acceptable level of misstatement for an individual account or group of accounts. It's a percentage of the overall materiality.

This is the lowest possible amount of misstatement that the auditor would ignore. It's a percentage of the overall materiality.

The relationship between materiality, audit risk, and the extent of audit procedures. When overall materiality is low (meaning less tolerance for error), audit risk is higher, and more extensive procedures are needed. Conversely, when overall materiality is high, more error is acceptable, so audit risk is lower, and fewer procedures are needed.

Procedures used to identify and assess risks associated with financial statements, such as inquiries, analytical procedures, and observations.

A step in the audit planning phase where expectations about financial statement balances are developed and compared to the actual reported figures. Significant differences need to be investigated.

Using analytical procedures throughout the audit process: planning, testing, and final review. These procedures help identify potential risks and confirm the accuracy of financial statements.

A document outlining the scope and conduct of the audit. It sets out the overall plan for the audit, including the nature, timing, and extent of procedures to be performed.

A detailed document outlining the specific audit procedures to be performed for each segment of the audit, addressing management assertions per account in the financial statements.

An estimate of the time required to execute the audit procedures listed in the audit program. It's used for estimating audit fees and assessing the efficiency of the audit team.