Audit client may encountered/ experienced certain incidents for which the company (i.e. audit client) has purchase insurance previously. The audit client has recorded a insurance claims receivable to cover the expense that has been incurred.
For instance, the employee of the company may suffer minor injury and got hospitalized for a period of 1 day. The hospital bill has been paid by the Company, who then claim the fee incurred under Company's insurance. The accounting entries recorded are as follows:
Dr. Insurance claims receivable
Cr. Cash
The insurance claims receivable represents the full amount of fee the Company had paid and intend to claim back from insurance. The question is whether if the incident is fully covered by the insurance. Management of the audit client or in-charge is responsible to go through the insurance purchased and determine:
- if the incident falls within the insurance coverage of the insurance purchased;
- if there's any cap on the claim amount
Management is required to evaluate this incident against the insurance policy. In addition, management may consider to discuss with the insurance agent on the likelihood of claiming insurance and the quantum as the insurance agent may have more in-depth industry experience / knowledge on this matter.
If the insurance claims receivable recorded by audit client is not likely to be fully recovered - management is required to estimate the receivable amount ( by reviewing historical trend or talking to insurance agent) and charge the remaining unrecoverable amount to profit or loss.
As claiming insurance may be a lengthy process - hence, do expect relatively long lead time.
For instance, the employee of the company may suffer minor injury and got hospitalized for a period of 1 day. The hospital bill has been paid by the Company, who then claim the fee incurred under Company's insurance. The accounting entries recorded are as follows:
Dr. Insurance claims receivable
Cr. Cash
The insurance claims receivable represents the full amount of fee the Company had paid and intend to claim back from insurance. The question is whether if the incident is fully covered by the insurance. Management of the audit client or in-charge is responsible to go through the insurance purchased and determine:
- if the incident falls within the insurance coverage of the insurance purchased;
- if there's any cap on the claim amount
Management is required to evaluate this incident against the insurance policy. In addition, management may consider to discuss with the insurance agent on the likelihood of claiming insurance and the quantum as the insurance agent may have more in-depth industry experience / knowledge on this matter.
If the insurance claims receivable recorded by audit client is not likely to be fully recovered - management is required to estimate the receivable amount ( by reviewing historical trend or talking to insurance agent) and charge the remaining unrecoverable amount to profit or loss.
As claiming insurance may be a lengthy process - hence, do expect relatively long lead time.
1 comment:
The money paid for the hospital visit would be expensed as incurred and the insurance recovery would only be recognised once the insurer has accepted liability or if they haven't yet, and thus it is contingent on their acceptance, then the asset would only be recognised if the receipt is virtually certain (ias 37), which is a fairly high hurdle. Whether the amounts are netted in the P&L is a separate question.
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