Mike asks…

Accountants – Which is more important: the audit of prepaid insurance or the adequacy of insurance?

For my Auditing class, I have to answer this question and I want your opinion. The question:

“You are auditing a medium-size manufacturing company. Discuss which is usually more important: the audit of prepaid insurance or the determination of the adequacy of insurance.”

MY ANSWER:
While both objectives are important, it is more important to audit the adequacy of insurance coverage than the prepaid insurance balance. The adequacy of insurance coverage would ensure that the client company would be a going concern if a catastrophe were to occur. An unqualified opinion on a client with inadequate business continuity, product liability, or general liability insurance coverage could lead to considerable liability on the auditor, if the client was forced out of business. Prepaid insurance is an asset created due to timing differences between insurance policy coverage dates and the date of the financial statements, and prepaid insurance is not usually a significant part of the balance sheet.

What do you think?

admin answers:

The question does not mention whether you are performing an audit of the company’s financial statements or of operations.

As an auditor of the financial statements (probably an external audit), you are responsible for the accurate presentation of the financials, so pre-paid insurance would be more important.

As an auditor of operations (as an external audit or internal audit), you are responsible for the effectiveness and efficiency of operations, as well as compliance. Adequacy of insurance would be more important because of its impact to operations. In addition, Company contracts/agreements/leases may require specific levels of insurance.

This all ties back to the general COSO objectives of: Reporting, Operations, & Compliance.

Davina asks…

taking commission advances in the insurance business, good idea or not?

the health insurance business allows one to earn money on a straight commission basis. if you go “as earned,” you never run the risk of being indebted to an insurance compeny. if you go “advance,” you have much more money up front, but could get “stuck” in terms of chargebacks/cancelled policies, etc., and always be “catching up” to get back to a -0- balance position. some argue that the “advances” in the beginning allow you the opportunity to fund expenses, lead purchases, etc. it’s a hard place to be because it takes a very long time to have enough clients to go “as earned” and really make an income. what do you think?

admin answers:

I had a friend working for Ameriplan and he was doing great… Loved the idea of getting the ‘advance’ money. However, some you sell insurance to, whatever the nature, are going to cancel.

He ended up losing his home, ruined his credit and was living in a car because people started canceling and he had to pay them back..

I realize the ‘advance’ system is faster than ‘as earned’, but trust me it will be a lot safer for you in the long run – I vote – NO to ‘advance’.

~best wishes to you
~jennifer
Helping others create income from home through education of the system and how it really works.

Steve asks…

I need to get insurance for my web design partnership, any ideas?

Who are the leading insurance providers for web design firms? Who should I look into? Who would be good for a partnership, small business?
UK based!!

admin answers:

Safe auto

Alana asks…

Looking for additional resources to get EXCELLENT SALES LEADS & successful marketing opportunities!!?

I have a small insurance business in the St. Louis metro area, and I have the BEST success working with the St Louis Business Journal to find my leads weekly in their publication, along with their annual Book Of List, and I also get local business information to stay competitive. Are there any other great ideas out there to get the same results? I pay 68.95 a year for all of this. I would like to stay within that SAME budget. If anyone else is interested in this Sales Tool Package, I have a way to give you the link. Thanks for the suggestions!

admin answers:

Copy Cat, explore the same with another Business Journal to get another set of Readers. Usually, with each Business Journal you will get different set of Readers.

Good Luck !!

David asks…

taking advance commissions in the insurance business..good idea or not?

many people start by taking commissions on advance in order to fund their advertising/lead cost/overhead, etc., but it can become a real catch 22 because every time a customer cancels a policy, you incur a “chargeback.” it is hard to recover from a few of those. on the other hand, taking commissions “as earned” is very little money in the beginning and difficult to build a business with. your opinions, please?
i’m talking about individual health insurance. a lot of people do cancel for various reasons–go on group plans, can’t afford any longer, find better rate, etc.

admin answers:

Until you get a book of business built up, you need to be careful with advanced commissions. Not ALL of the money received is YOURS, until the end of the policy period.

You need to keep “company money” and “operating money” separate – especially in today’s market of electronic sweeping of your trust account. If you co-mingle funds, you can really get in trouble. You need a mix – some “advance” and some “paid as earned” and you should do alright. Live on the “as earned” and be careful with the other.

Choose your customer base wisely and work those that tend to cancel early a little harder to keep them active.

Good luck and I hope this helps!

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