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While I was working, I came across this.. The nbv of insurance is divided by the nbv of assets insured to arrive at coverage %.. What exactly is the nbv of insurance? How does it actually work?
If I have an asset with a book value of 700,000 and it’s insured for 500,000, then when I want to claim for damage to the asset I can only claim 5/7 ths the cost of repair
Ok?
Dear Teacher, in your example, if we audit the client, we should request them to increase the insurance coverage to 100% NBV = $700,000. Am I understanding correctly? Thank you so much.
@beomkomap Welcome to my AAA forum!
Please note that you are posting to a thread that is 9 years old(!)
Short answer – no
The tutor was illustrating what it would mean for an insurance claim if assets were underinsured. The 2/7ths would be an expense to profit or loss.
It is not for the external auditor to direct management on matters that are management’s responsibility. It is for management to decide how much insurance should be taken out.
Dear Teacher, I got it now. I always thought insurance coverage is also part of our audit so we need to make sure the assets are sufficiently covered by insurance.
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