Accountant for insurance agency owners who need an audit or review
You collect premium that belongs to the carrier and earn commission that belongs to you. We keep the two separated in your books and prove the separation when someone outside the agency asks.
- audit and attestation engagements
- 500+
- states served
- 50
- peer-reviewed firm
- AICPA
- years auditing experience
- 16+
What an agency's accountant has to get right
Premium and return premium in your trust account belong to the carrier and the insured until you remit them, so only commission and fee income is revenue.
An audit and a review are priced differently, and a lender whose covenant asks for reviewed statements can take a review instead of an audit opinion.
We read last year's numbers first and price the work from them, so you have the quote before the engagement letter.
What an accountant for insurance agency owners does
Insurance agency work at this firm starts with the report an outside party asked for, and covers the books behind it where they are not ready.
Financial statement audits and reviews
The signed report a lender, a carrier or a buyer asked for.
Buy-side diligence
A seller's books reconciled to their tax returns and bank statements before you sign.
Books and filings
Insurance agency bookkeeping on the trust and operating accounts, payroll and producer compensation, business tax returns and quarterly estimates, from our insurance accounting firm where the statements are not ready.
What we prepare insurance agencies for
An insurance company audit is one of four things an agency is asked to produce records for. We take this work from agencies, brokerages and managing general agents:
- AAn external financial audit, for a lender, a carrier or a buyer
- BA state insurance department examination, with your records prepared before the visit
- CA statutory accounting assessment
- DAn internal compliance audit of the trust account and the commission records
Premium tax questions belong with the same work, and we answer them alongside it.
We clear independence before we accept an audit. Where the statements are not ready, we scope the bookkeeping as a separate engagement and confirm the audit can stay independent before we quote it.
Filing an NAIC annual statement and auditing a captive insurer are different work, and we will say on the first call whether we take it.
The premium you collect is not agency revenue
Under California Insurance Code section 1733, a licensed producer holds premium and return premium in a fiduciary capacity, and a licensee who diverts those funds commits theft.
Section 1734 gives that licensee three options:
- (a)Remit the premium less commission to the carrier
- (b)Hold the funds in a trust account separate from every other account
- (c)Hold them in the government-backed instruments permitted by section 1734.5
Other states write their own version of the rule, so check the one that licenses you.
Record commission and fee income as revenue, and the premium you hold for the carrier as a liability. An agency that books gross deposits as revenue reports income it never earned, and we reverse it in the audit.
A buyer's accountant finds the same thing, by which point the seller has priced the deal on the overstated number.
Paid in
The insured pays premium
Held in a fiduciary capacity
Agency trust account
A liability to the carrier, not income
Remitted
Carrier
Premium, less commission
Revenue
Agency operating account
Commission and fee income
Audit, review or compilation, and who asks for each
Lenders, carriers, buyers and state insurance departments ask for these reports, and they do not all ask for the same one. Get the word they used.
- Audit.
- A CPA issues an opinion.
- Review.
- A CPA gives limited assurance, a report saying we are not aware of any material modifications the statements need.
- Compilation.
- A CPA presents your numbers in statement format with no assurance attached.
The AICPA places an audit where the financing is complex, which covers an outside investor, a sale or a merger. Where a covenant asks for reviewed financial statements, a lender can take a review, and an audit costs more than the covenant asked for.
Your carrier runs a separate premium audit to true up the premium on your own policy, and what happens if you skip an insurance audit covers that process.
Level of assuranceLevel of assurance, rising
- 1Compilation
- Your numbers in statement format, with no assurance
- 2Review
- Limited assurance
- Accepted where a covenant asks for reviewed statements
- 3Audit
- A CPA issues an opinion
- Placed where financing is complex: an investor, a sale or a merger
How an insurance agency engagement starts
- 1
Scope and independence check
What you need, who is asking, and whether we can act for you.
- 2
Quote from your numbers
We read last year's statements to find annual gross revenue, then price the work.
- 3
Request list and onboarding
Trial balance, general ledger, bank and trust statements, carrier commission statements, payroll filings and the agency agreements.
- 4
Delivery
The signed report and management letter for an audit, or monthly statements where we keep the books instead.
Buying an agency
Send us the seller's numbers before you sign
We reconcile the seller's books against their tax returns and bank statements, and report on the trends and the transfers. No engagement letter needed to get a price.
Ask about diligence on an agency purchaseWhat drives the cost of an insurance agency engagement
An accountant for insurance agency work prices against the file, not by the hour.
- 1Which engagement the requesting party needs: compilation, review or audit
- 2Annual gross revenue and transaction volume
- 3The number of entities, and whether locations consolidate
- 4The condition of the records at handover, and whether the trust account reconciles
- 5Your deadline, and how much time is left before it
On agencies licensed in more than one state:
“We have full mobility in all 50 states... Last year we had 49 states. That's not to say we have a thousand clients in every state, but we have at least one.”
From an insurance agency owner:
“We were impressed with their ability to look at our overall financial and tax needs from several different angles. They helped us prepare our taxes on time, identified opportunities to improve our payroll process efficiency, and confirmed the accuracy of our books.”
Related services
This is general information, not advice for your circumstances. Your lender, carrier or buyer decides which engagement it requires, so speak to a CPA before acting on it.
Talk to an accountant for insurance agency owners
Agencies reach us when a lender moves a deadline or a buyer asks for an independent read on the numbers. Send last year's statements and tell us who is asking, and we will say what closes it and what it costs.
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Contact
Connect with Dimov Audit
Our dedicated team is ready to assist you on your path to financial success.
24 Mercer St, 2nd Floor, Suite 214
New York, NY 10013
United States
Reviewed by George Dimov, CPA. Dimov Audit works with insurance agencies and brokerages for owners, lenders and buyers across all 50 states. Profile