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Insurance of Financial Statement

In: Business and Management

Submitted By orsiola
Words 322
Pages 2
Feature Product or service Product features

Attestation Framework Audit opinion - a professional judgment Claims viewed as challenges to auditor reputation Based on negligence laws Duty of care doctrine determined by common law Essentially unlimited dependent on losses sustained Essentially unlimited, although limited by statements of subsequent periods Adherence to professional standards Must be independent Based primarily on time spent which is related to the risk - often fixed in advance A n integral part of the audit process with pervasive effect Professional training environment with focus on accounting and auditing

Insurance Model Insurance policy - a contractual obligation Objective is to pay legitimate claims -failure to pay affects reputation Based on insurance contract Specific insured parties as stated in the policy Contractually limited to a fixed amount Limited to policy term

Nature of liability Who can seek compensation Amount of compensation Period of exposure

Key success factor

Effective underwriting and claims handling - auditing standards not relevant Independence unnecessary Based on insurance risk determined by underwriting process A similar role to auditing important to underwriting Specialists in diverse fields with analytical approach to business

Relationship with customer Pricing

Role of judgment

Operating structure

While there are important structural differences between the two models, perhaps the single most significant difference is the attempt to replace tort law liability with a contractual form of liability. In many respects, this is essentially a return to the role of auditing at the turn of the century. Time is not reversible however, and the price that must be paid for this return to a contractual liability exposure is a willingness to pay claims when there are errors in financial statements, something auditors would have considerable difficulty with. Is financial statement insurance a viable product? There does not seem to be any reason why insurance companies could not provide a similar form of insurance today. For example, fidelity bonding companies provide a form of loss coverage in the event 106…...

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