The companies Act 2015 and Insurance Regulatory Authority (IRA) gives guidelines to external auditors on how the audit of insurance companies in Kenya should be carried out. The Companies Act requires that the financial statements of a company be audited annually, with the exception of small companies. Small companies are defined as those with a turnover of no more than 50 million shillings, net assets of no more than 20 million shillings, and no more than 50 employees. The Companies Act gives guidelines on duties of an auditor, the rights, powers, qualifications for appointment, dismissal, remuneration, removal and resignation of an auditor.
The IRA requires that insurance companies prepare their financial statements annually in accordance with International Financial Reporting Standards (IFRS) and have them audited in accordance with International Standards on Auditing (ISA). The guidelines also emphasize that insurance companies should disclose information on their financial position and risks in a timely and relevant manner.
The Insurance Act, CAP 487 of the laws of Kenya requires disclosure of all relevant information by the insurance companies. The Act envisages that this facilitates both parties in making informed decisions on the intended contractual relationship. The same act also requires insurance companies to prepare financial statements and submit the same in a prescribed format and within pre specified timelines failure to which attracts a penalty.
An audit engagement for an insurance company is all about the review of the financial statements prepared by an insurance company and to determine whether they conform to the requirements of all relevant applicable laws.
The auditor will correct evidence on all financial matters of an insurance company. He shall review major events and transactions that occurred in the financial year. This is basically what is referred to as substantive testing. The other relevant financial matter shall be collected using the sampling method. The auditor will also perform tests that he deems necessary during the audit exercise. The evidence collected will determine the type of report he shall give at the end of the audit exercise. During the audit exercise the auditor shall be guided by the International Standards on Auditing (ISAs).
Audited reports and financial statements that are compliant with all relevant laws in the past year have caused a major shift in the insurance industry. This is a result of the introduction of the new accounting standard IFRS 17. Insurance companies had to invest large sums of funds to acquire the necessary technologies and also train their staff on this recent development.
CGA Consult CPAK is an audit firm registered and approved by ICPAK offering audit and assurance services, accounting, finance and human resources to different clients in different industries. We are experienced in the audit insurance companies. We have gained our expertise on insurance auditing as a result of multiple engagements with insurance companies in the East Africa region. We have continued to update our skills and knowledge on all matters in regard to auditing of insurance companies. Insurance companies in the region can count on us to offer them consultancy services that impact their operations positively.
