Lydia Bawa
The National Insurance Commission (NIC) has directed insurance companies to terminate the services of external auditors who have audited their accounts for more than five consecutive years, in a bid to tighten financial reporting standards and also enhance public confidence in the industry, B&FT has gathered.
The directive, which forms part of the guidelines to insurance companies on engaging the services of external auditors, takes effect this year.
NIC — the industry regulator — has issued the guidelines to ensure that insurance companies have their financial statements prepared accurately and are free from material misstatements, whether due to fraud or error.
According to the NIC, the guidelines are to ensure that there is a reliable financial reporting process for both public and supervisory purposes, in addition to ensuring that there are clearly defined roles and responsibilities for the Board, Management and external auditor with regard to the financial reporting process.
?With reasonable assurance, the financial statements of the insurer and intermediary are free from material misstatement, whether due to fraud or error,? the Commission has said.
The Commission explained following the directive, the existing auditors will perform the audit of insurance companies for the 2014 accounting year. However, auditors who will attain five consecutive years on the 2014 audit shall not be retained after the audit, which will require the appointment of new auditors.
The NIC says insurance firms that fail to adhere to the directive could be subjected to various administrative sanctions from the Commission to correct the situation, including restricting companies from declaring dividends, or rejection of an audit, and requiring the insurer to undertake a further audit conducted by an auditor chosen by the Commission at the expense of the insurer.
The NIC, whose mandate under the Insurance Act 2006 (Act 724) is to ensure effective administration, supervision, regulation, monitoring and control of the business of insurance to protect the insurance industry and policyholders, said it is drawing its authority from the law to limit the mandate of external auditors to five years to keep up with internationally acceptable financial reporting standards.
The guidelines have become necessary as some insurers have engaged the services of external auditors for a period that spans over a decade, creating a situation that could compromise the integrity of the audits and financial statements of insurers.
Currently, there are 43 companies in both the life and non-life insurance sectors who are all competing in a market where insurance penetration is less than two percent.
Competition in the marketplace has forced many insurance companies to resort to various unconventional practices and procedures that expose the firms to various risks.
In recent times, cash flow insolvency issues and operational difficulties have forced the NIC to tighten the screws in the insurance industry, with some firms such as Industrial and General Insurance Ghana (IGI) being put into administration.
By Elliot Williams & Evans Boah-Mensah
