Insurance Accounting Audit Checklist

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Accounting audits can feel overwhelming, but organizations that maintain accurate books throughout the year are typically well prepared long before the auditor arrives.

For insurance agencies, MGAs, and wholesalers, audits involve much more than reviewing a balance sheet or income statement. Auditors often examine premium transactions, carrier settlements, commission accounting, trust accounts, reconciliations, internal controls, and supporting documentation.

Preparing for an audit should not be a last-minute exercise. It should be part of a disciplined accounting process followed throughout the year. This checklist outlines the key areas every insurance organization should review before an accounting audit.

Why Audit Preparation Matters

Preparing for an audit helps organizations:

• Improve financial accuracy
• Reduce audit adjustments
• Identify accounting errors early
• Strengthen internal controls
• Improve documentation
• Build confidence in financial reporting
• Reduce audit costs

Organizations with well-documented accounting procedures typically experience smoother audits.

Verify Financial Statements

Start with the foundation.

Ensure the following reports are complete and accurate:

• Profit and Loss Statement
• Balance Sheet
• Cash Flow Statement
• General Ledger
• Trial Balance

Financial reports should agree with supporting accounting records.

Reconcile Every Bank Account

Before the audit begins, verify that all bank accounts have been reconciled.

Review:

• Operating accounts
• Trust accounts
• Payroll accounts
• Savings accounts
• Credit card accounts

Outstanding reconciling items should have documented explanations.

Review Carrier Reconciliation

Carrier balances should agree with carrier statements.

Verify:

• Premium collected
• Carrier settlements
• Outstanding carrier payables
• Return premiums
• Carrier adjustments
• Payment history

Every carrier balance should be supported by reconciliation documentation.

Verify Trust Accounts

Trust accounts often receive special attention during audits.

Confirm:

• Trust account balances reconcile
• Premium funds are segregated
• Carrier liabilities are accurate
• Trust account adjustments are documented
• Bank balances agree with accounting records

Trust funds should never be mixed with operating funds.

Review Commission Accounting

Auditors frequently review commission activity.

Verify:

• Commission percentages
• Producer payments
• Split commissions
• Overrides
• Adjustments
• Chargebacks

Commission reports should reconcile with accounting records.

Review Accounts Receivable

Outstanding receivables should be reviewed before the audit.

Confirm:

• Aging reports are accurate
• Old balances have explanations
• Collection efforts are documented
• Write-offs have approval

Large outstanding balances often receive additional attention during audits.

Review Accounts Payable

Verify:

• Vendor balances
• Outstanding invoices
• Payment history
• Accrued expenses

Accounts payable should agree with vendor documentation.

Verify Journal Entries

Review all manual journal entries.

Look for:

• Large adjustments
• Unusual postings
• Unsupported entries
• Duplicate entries

Every journal entry should include supporting documentation.

Confirm Supporting Documentation

Every significant accounting transaction should have documentation.

Examples include:

• Carrier statements
• Bank statements
• Commission reports
• Payment confirmations
• Policy documentation
• Adjustment approvals
• Settlement reports

Strong documentation significantly reduces audit questions.

Review Internal Controls

Auditors often evaluate accounting procedures as well as financial records.

Review your controls for:

• Segregation of duties
• Approval workflows
• User permissions
• Audit trails
• Payment approvals
• Reconciliation procedures

Document any improvements made during the year.

Review Month-End Close Procedures

Verify that every accounting period was closed consistently.

Confirm:

• Reconciliations completed
• Financial reports reviewed
• Adjustments approved
• Documentation retained

Consistent month-end procedures demonstrate strong financial management.

Review Carrier Payables

Carrier liabilities should be current and accurate.

Verify:

• Outstanding balances
• Settlement schedules
• Payments sent
• Credits
• Return premiums

Carrier payable reports should reconcile with the general ledger.

Verify Premium Reconciliation

Premium reconciliation confirms that policy activity agrees with accounting.

Review:

• Premium billed
• Premium collected
• Policy transactions
• Carrier balances
• Commission calculations

This is one of the most important audit procedures for insurance organizations.

Evaluate User Access

Review who has access to accounting systems.

Confirm:

• Former employees removed
• User permissions updated
• Administrative access restricted
• Password policies enforced

Strong access controls reduce financial risk.

Maintain an Audit Binder

Many accounting departments prepare a central audit file containing:

• Financial statements
• Bank reconciliations
• Carrier reconciliations
• Trust account reconciliations
• Commission reports
• Supporting schedules
• Accounting policies
• Internal control documentation

Having information organized saves considerable audit time.

Common Audit Findings

Many insurance organizations receive similar audit observations.

Common issues include:

• Missing documentation
• Delayed reconciliations
• Trust account differences
• Carrier balance discrepancies
• Unsupported journal entries
• Manual spreadsheets
• Weak internal controls

Most findings can be prevented through disciplined monthly accounting procedures.

How Insurance Premium Accounting Software Helps

Modern insurance premium accounting software strengthens audit readiness by providing:

• Complete audit trails
• Automated reconciliation
• Carrier settlement tracking
• Commission reporting
• Trust account reporting
• User permissions
• Exception reporting
• Financial integrations

Automation reduces manual work while improving documentation and consistency.

Best Practices

Organizations that consistently pass audits successfully usually:

• Reconcile monthly
• Maintain supporting documentation
• Review financial statements regularly
• Strengthen internal controls
• Standardize accounting procedures
• Automate repetitive workflows
• Archive accounting records
• Resolve discrepancies immediately

Audit preparation becomes much easier when good accounting habits are followed throughout the year.

How Remote Books Online Helps

Remote Books Online helps insurance agencies, MGAs, and wholesalers maintain audit-ready accounting records.

Our professionals assist with:

• Monthly bookkeeping
• Financial reporting
• Bank reconciliation
• Carrier reconciliation
• Trust account reconciliation
• Commission reporting
• QuickBooks support
• Xero support
• Accounting process improvement

For organizations seeking additional automation, we also support Premium Accounting implementations that improve audit readiness through automated reconciliation, reporting, approvals, and insurance financial workflows.

Final Thoughts

Successful audits begin long before the auditor arrives. Organizations that reconcile regularly, maintain strong documentation, implement internal controls, and review financial reports every month rarely face major audit surprises. Combining disciplined bookkeeping with insurance premium accounting software creates a financial environment that supports accurate reporting, stronger compliance, and continued business growth.

Frequently Asked Questions

What should insurance agencies prepare before an audit?
Financial statements, reconciliations, trust account records, carrier statements, commission reports, bank reconciliations, journal entries, and supporting documentation should all be reviewed before the audit.

Why are trust accounts important during an audit?
Trust accounts contain premium funds held on behalf of carriers and require accurate reconciliation and documentation.

What are the most common insurance accounting audit findings?
Common findings include missing documentation, delayed reconciliations, unsupported journal entries, trust account discrepancies, and weak internal controls.

How often should accounting records be reviewed?
Accounting records should be reviewed monthly rather than waiting until the annual audit.

Can premium accounting software improve audit readiness?
Yes. Insurance premium accounting software improves audit readiness by providing automated reconciliation, audit trails, carrier reporting, trust accounting, commission reporting, and financial integrations.

Related Resources

• Insurance Accounting Guide
• Insurance Accounting Internal Controls
• Reconciling Carrier Statements
• Carrier Reconciliation Best Practices
• Insurance Trust Accounting Explained
• Insurance Agency Month-End Close Checklist
• Financial Reports Insurance Agencies Should Review
• Bookkeeping Pricing for Small Businesses
• Get Your Bookkeeping Quote