What is an Audit?
An audit is a systematic review or assessment of financial records, processes, and operations to verify their accuracy and adherence to regulations and standards. Audits are commonly performed in business environments, including in the insurance industry, to ensure that financial statements are truthful, accurate, and compliant with industry standards and laws.
In the context of insurance, an audit might involve reviewing a policyholder’s records to ensure that premiums and claims are properly accounted for. This is particularly important in property and business insurance, where the number of employees, payroll, or other business details can impact the cost of premiums. For example, a workers’ compensation insurance audit could review payroll records to ensure the premium charged accurately reflects the size of the workforce covered under the policy.
An audit can be internal, where a company reviews its records, or external, where an independent third party evaluates its records. Proper audits help prevent financial discrepancies and fraud and ensure transparency in business operations.