Republic of the Philippines

Department of Finance
INSURANCE COMMISSION
1071 United Nations Avenue
Manila

Circular Letter (CL) No.: 2014-'O

t
Date: O] January olo
Suoersedes:
TO : ALL PRE.NEED COMPANIES DOING BUSINESS IN THE
PHILIPPINES

SUBJECT : Adoption and lmplementation of the Manual of

Examination of Pre-Need Companies

WHEREAS, the Commission shall require every pre-need company to keep its
books, records, accounts and vouchers in such manner that the Commission's
authorized representatives may readily verify the company's annual statements
and ascertain whether the company is solvent and has complied with the
provisions of the Pre-Need Code of the Philippines (PNC) or the circulars,
instructions, rulings or decisions of the Commission.l

WHEREAS, the Commission shall, at least once a year and whenever it

considers that the public interest so demands, cause an examination to be
made into the affairs, financial condition and method of business of every pre-
need company, and of any other person, firm or corporation managing the fund
or affairs and/or property of such pre-need company. Such examination shall
be carried in a manner prescribed by the Commission.2

WHEREAS, the Commission shall have the authority to make, amend and
rescind such accounting rules and regulations applicable for pre-need
companies. The Commission may prescribe, among other things, the form or
forms in which required information shall be set forth, the items or details to be
shown in the components of the financial statements, and the recognition and
measurement basis to be adopted for each account, after considering the
nature of the operation of the pre-need industry. Pre-need companies shall
strictly comply with such accounting rules and regulations as prescribed by the
Commission.3

1
Section 45 of the Pre-Need Code.
2
Section 46 of the Pre-Need Code.
3
Section 47 ofthe Pre-Need Code.

Head Office; P.O. Box 3589 Manila FAX No. 522-1,4-34Tel.Nos.523-84-61 to 70 Website: www.insurance.gov.ph
T

NOW THEREFORE, by the power vested in the lnsurance Commission under

Section 6 of the PNC a Manual of Examination of Pre-Need Companies is
hereby adopted by the Commission for the guidance of all its examiners in
conducting examination/verification of the annual statements of pre--need
companies.

ATTACHED HERETO is the Manual in the Examination / Verification of

Pre-Need Companies.

DENITIS B. FUNA
lnsurance Commissioner
 A MANUAL
IN THE
EXAM INATI ON NE RI FI CATI ON
OF
PR.E.NEED COMPANIES
 TABTE OF CONTENTS

l.INTRODUCTION 1-1

11. CHART OF ACCOUNTS 11-A-D

A. ASSETS 11-A-1-3
B. LIABILITIES 11-B-1-3
C. STOCKHOLDER'S EQUITY 11-C-1
D. NOMINALACCOUNTS L1-D-1-8

111. EXAMINATION CYCLE 111-A-1

A, Administrative Guidelines 111-A-1

1. On-Site Examination 111-A-1

L.L. Preparations 111-A-1
1.2 Concluding the examination ............ ..... 111-A-2-5
Exhibit A.1. Designation Letter ... 111-4-3
Exhibit A.2 On-Site Examination ... 111-A-4

2. Annual Statement Verification (Off-site inspection) 111-A-5

2.1 Filing 111-A-6
2.2 Acceptance of Annual Statement and Annual Statement for
each type of plan 1.Lt-A-7
2,3 Assignment................. ....... 111-A-7
2.4.Minimum Verification Procedures ... 711,-A-7
2.5. Verification, Analysis, and Evaluation of Accounts 1LL-A-8
2.6 Transmittal of Results of Examination/Verification 111-A-9
2.7 Approval of the AnnualStatement 111-A-9
2.8 Publication of the Synopsis and Newspapers clippings 111-A-9
Exhibit A.3 Checklist of Documents to be submitted to form part
of the Annual Statement 111-A-10
Exhibit A.4 Annual Statement of Trust Fund for each type of plan .......... tll-A-l2

B. Audit Guidelines 111-B-1

1. Physical lnventory 111-B-1

2. Audit Procedures - ASSET ACCOUNT 111-B-1
2.1 lnvestment in Trust Fund 111-B-1
2.2 lnsurance Premium Refund ttL-B-7
2.3 Government Securities 111-B-8
 2.4 Cash on Hand and in Banks 111-8-8
2.5 Mutual Funds/Unit lnvestment Trust Fund (UITF) 111-8-9
2.6 Short-Term I nvestments 111-B-9
2.7 Corporate Bonds 111-B-10
2.8 Mortgage Loan 111-B-L0
2.9 Planholde/s Loan 111-B-1L
2.10 Stocks lLL-B-12
2.11 Real Estate........... 111-B-13
2.12 Other lnvestments 111-B-13
2.13 Accrued lnvestment lncome 111-B-14
2.14 Accounts / Notes Receivable 111-B-14
2.15 Property and Equipment 111-B-14
2.l6lnventories 111-B-14
2.17 Other Assets 111-B-15

3. Audit Procedures - LIABILITY ACCOUNT

3.1 Pre-Need Reserves .......... 111-8-15
3.2 lnsurance Premium Reserve 111-8-16
3.3 Planholders' Benefit Payable .... 111-8-16
3.4 Counselors' Bond Reserve 111-8-16
3.5 Accounts/Notes Payable 711-8-77
3.6 Taxes Payable .......... 111-8-17
3.7 Accrued Expenses .......... 111-8-17
3,8 Other Liabilities .......... 111-8-18

4. Audit Procedures - STOCKHOLDER'S EQUIry ACCOUNT 111-B-18

 T. INTRODUCTION

The examination of Pre-need companies shall embodied in Section 46 of the Pre-need Code of
the Philippines otherwise known RA9829. lt is through this medium that the function of the
lnsurance Commission in regulating the companies and protecting the interest of the
planholders. There are two (2) types of examination done by the lnsurance Commission - on-
site and off-site verification of Annual Statements of Pre-need companies including its Annual
Statements of each type of plans.

The concepts presented in this Manual of Examination can be applied to all examination,
however its periodic review is recommended and modified to keep pace with the changes of
business environment, accountings and auditing standards, various circulars that may be issued
by the lnsurance Commission.

It is entirely the standard procedures and were not claimed to be complete and absolute, as the
examiners may require additional documents and perform additional procedures, as necessary
in exercising judgments at every stage of examination process.

L-L
 I I. CHART OF ACCOUNTS

A. ASSETS
L. lnvestment in Trust Funds - refers to a fund set up from the planholders' payments to
pay for the cost of benefits and services, termination values payable to planholders
and other costs necessary to ensure the delivery of benefits or services to planholders
as provided for in the contracts.

2. lnsurance Premium Fund -this represent corporate assets that are restricted to cover
the payment of insurance premiums after the paying period of the pre-need plan.

3. Government Securities - investments in long term government securities and other

long term debt instruments issued by the government and its instrumentalities.

4. Cash on hand and in banks - includes currency or cash items on hand (such as cash
items awaiting deposits and cash in working funds).
4.1 Undeposited collections - represents cash in currency notes, coins,
checks, and any other cash items in favor of the company to be
deposited in the bank on the following banking day.
4.2 Petty cash fund - fund used to defray immediate minimal
disbursements which are evidenced by duly accomplished and
approved petty cash vouchers.
4.3 Commission fund - fund set up for the purpose of paying
commissions to agents whose amounts are less than the minimum
amount prescribed for check payment.
4.4 Documentary Stamps Fund - set-up for documentary stamps affixed
to plan contract, agreements, promissory notes, agent's certificates
of authority and other legal documents.
4.5 Cash in banks - current - represents checking account balances in
banks maintained by the company's head office, branches/agencies.
4.5 Cash in banks - savings - represents savings/demand deposit account
balances in banks maintained by both the company's head office and
branches/agencies.

5. Mutual Funds/Unit lnvestment Trust Fund (UITF) - Both funds are pooled and open-
ended investments meaning they are pooled by different kinds of funds, people and
companies to be invested and diversified to other investments like stocks, bonds,

11-A-1
 securities, money market and other mutual funds and trust funds. They are open-
ended investments meaning you can buy or redeem anytime you want.

6. Short -term lnvestments - a money market investment usually savings deposit

account (SDA)with Bangko Sentral.

7. Corporate Bonds - cost of placements in long term commercial paper and other long
term debt to a private corporation whether domestic or foreign

8. Real Estate whether for office or other

- represents the cost of real estate properties
uses which are occupied wholly or in part by the company for operation of the
business, or real estate held as investment for the production of income and/or real
estate acquired in satisfaction of debt including the cost of addition or capital additions
therein.

9. Planholders Loan - loans granted to a planholder at a prescribed rate, fully secured by

the value of their pre-need plan.

10. Stocks - all transactions affecting acquisitions and sale/disposal of other companies'
preferred or common stocks acquired for investment purposes.

11. Accounts Receivables - This account shall be limited to the following:

a) lnsurance Claims Receivable - claims from the insurer for the
unpaid balance of instalments arising from the demise or
disability of an insured planholder;
b) Receivable from trustee - these are advances made by the
pre-need company to settle obligations to availing
planholders, which are reimbursable by the trustee. This
amount must be deducted from the trust fund.
c) Advances to DOSRI (Directors, Officers, Stockholders and
related interests) such as employees, agencies and agents .

Notes: Each of the foregoing items shall be separately disclosed to

the notes to financial statements of the company.

Allowonce lor Doubtful Accounts Receivable - these accounts are set up

Accounts -
to provide for possible losses arising from non-collection of receivable and of long
outstanding receivable which are doubtful of collection and which may not be collected in the
future.

LL-A-2
L2. Due from Trust fund - this account represents advances by the company for plan
benefits paid to planholders that are chargeable to the trust fund. This amount must
be deducted from the trust fund.
13. Notes Receivable -
this represents interest bearing loans granted by the company and
evidenced by duly approved and notarized promissory notes.

L4. Accrued lnvestment lncome - this shall represent interest receivable pertaining to
interest accrued arising from cash and cash equivalents, financial assets and loans and
receivable.

15. lnventories -
(it is applicable for life plans) it consists of caskets, urns and memorial
lots, shall be carried at the lower of cost or net realizable value. All other requirements
of PAS 2 shall be complied with respect to this account.

16. Property and Equipment - these are tangible items that are held for use in the
production or supply of goods or services, for rental to others, or for administrative
purposes, and are expected to be used during more than one period

Allowance for Depreciation for Propefi and Equipment - this represents the
aggregate of the estimated depreciation provided by the company on its property
and equipment.

17. Other Assets this account is a major non-current asset grouping in the balance sheet which
-
absorbs subsidiary account balances amounting to less than five percent (5o/o) of Total Assets.
lf more than five percent (5%), each subsidiary account shall be presented separately in the
trial balance.

Example of other asset accounts under this classification include, but is not limited to the
following:

o Pre-operating expenses/prepayments - this represents actual

expenses incurred in establishing a pre-need company, or in opening
a branch office thereof. The cost may include legal fees, promotional
fees, incorporation fees, etc.,, the combined amount of which, is
amortized normally over a period of five (5) years or over the period
of expected usage, which is equal or less than L2 months or
within the normal operating cycle.

11-A-3
 Retirement Pension Asset assets bought with the
contributions to a pension plan for the exclusive purpose of
financing pension plan benefits of the employees.
Deferred Tax Asset - refers to a situation where a company has
overpaid taxes or taxes paid in advance, or it is the carry-over
of losses, thus reducing the company's future tax liability, in the
sense, the loss is an asset.
Creditable Wathholding Tax - .is an amount that is withheld
from income payment.
lnput Tax - this represents the outstanding balance of value
added tax added to the price when you purchase goods or
services liable to VAT
Deposits - deposit on leased properties which may be applied
on the last period of occupancy or may be refunded upon
termination of the agreement as provided in the contract.
Goodwill - is an intangible assets that arise when the company
acquire another for a price higher than the fair market value of
its assets.

B.LIABILIT!ES:
1. Pre-need Reserues - this represents the Actuarial Reserve Liabilities (ARL) set up by the
company pertaining to the accrued net liabilities of the pre-need plan company to its
planholders.This amount is determined and certified by an actuary accredited by the
lnsurance Commission (lC) in accordance with generally accepted actuarial principles
and practices together with the standards and guidelines set by the lC; or, in their
absence, the actuarial standards and guidelines of the Actuarial Society of the
Philippines (ASP), or, in their absence, the international actuarial principles and
standards. ln the determination of the actuarial reserve of any Plan, the Actuary should
take into account the deferred charges. The actuarial reserve should not be less than
the corresponding Termination or Surrender Value of the Plan and shall be equal to the
amount shown in the ARL as required under SEC Rule 23.2.3.

(a) Pre-need Reserves (PNR) shall be set up for all pre-need benefits
guaranteed and payable by the pre-need company as defined in the pre-
need plan contracts;
(b) ln recognizing PNR for educational and pension plans, the general
requirements of PAS 37 on provisioning and the specific methodology
provided below shall be complied with by the company. For life plans, the
requirements of PFRS 4 (lnsurance Contracts) shall be complied with by the
com,an,;
11-8-1
(c) The amount recognized as a provision to cover the PNR shall be the best
estimate of the expenditure required to settle the present obligation at the
balance sheet date. The risks and uncertainties that inevitably surround
many events and circumstances shall be taken into account in reaching the
best estimate of a provision;
(d) Since the effect of the time value of money for pre-need plans is material,
the amount of provision shall be the present value of the funding expected
to be required to settle the obligation with due consideration of the
different probabilities, as follows:

(i) On Currently-Being Paid Plans

(1) Provision for termination values applying the surrender rate
experience of the company. The trend of surrender rate
experience shall be disclosed in the company's notes to financial
statements;

(21 Liability shall be set-up for the portion of currently-being-paid

plans that will reach full payment, applying the full payment
experience of the company. lt shall be equivalent to the present
value of future maturity benefits reduced by the present value of
future trust fund contributions required per Product Model
discounted at the approved hurdle rate per Product Model of the
company.
Currently-Being-Paid Plons pertoin to occounts thot ore up-to-date in
poyment and include in-force plans as defined in the contract provision,
i.e., plans within the 50-day groce period.

(ii) On Lapsed Plans within the Allowable Reinstatement Period

Provision for termination values applying the reinstatement experience of
the company. The trend of reinstatement experience shall be disclosed in
the company's notes to financial statements;

(iii) Fully Paid Plans

(1) For those due for payment within the next five (5) years, the
reserve shall be the present value of future maturity benefits
discounted at the attainable rate; as determined and certified by
the company's trustee using industry best practices and principles
which shall indicated in such certification;
(2) For those not yet due for payment within the next five (5) years,
the reserve shall be the present value of future maturity benefits
discounted at the approved hurdle rate per Product Model of the
company.

tt-B-2
 (e) Future events that may affect the foregoing amounts shall be reflected in
the amount of the provision for PNR where there is sufficient objective
evidence that they will occur;
(f) The rate of surrender, cancellation, reinstatement, utilization, and inflation
when applied, must consider the actual experience of the company in the
last three (3) years, or the industry, in the absent of a reliable company
experience;
(g) The computation of the foregoing assumptions shall be validated by a
qualified actuary of the pre-need company. His or her validation report
shall be provided to its external auditors for purposes of statutory audit of
the financial statements of the company, and shall be submitted to the
Commission as a separate report;
(h) The probability of pre-termination on surrender of fully paid plans, shall be
considered in determining the Pre-need Reserves of fully paid plans. A pre-
termination experience on fully paid plans of 5% and below shall be
considered insignificant. ln such cases, derecognition of liability shall be
recorded at pre-termination date;
(i) The disclosure requirements under PAS 1 relative to methods and
assumptions used to estimate the PNR including the sensitivity of the PNR
amount, shall be complied with;
U) Any excess in the amount of the trust fund as a result of the initial adoption
of the revised reserving method shall neither be released from the fund nor
be credited/off-set to future required contributions;
(k) lndividual subsidiary accounts for education plans and for pension plans
must be maintained (e.g. (1) "Pre-need Reserves - Education Plans"; (2)
"Pre-need Reserves - Pension Plans").
2.lnsurance Premium Reserve - this includes the cost of purchasing insurance premiums after
paying period of the pre-need plans. This is additional liabilities of the company as Other Reserves
in the AVR.

3.Planholders' Benefits Payable - this includes amount payable to planholders and beneficiaries
in the course of settlement and incurred but not reported claims on the pre-need contract such
as due but unpaid matured benefits, surrender benefits and annuity payments.

4.Planholders' Deposit -
(l) Planholders' deposit - lnsurance premium - this includes amount collected from
the planholder for the payment of planholder's insurance premium to the insurer.
(t t) Planholders' deposit - Others - this includes amount received from the planholder
for a new plan not yet issued; excess fractional payments of a regular installment
and payment received with application for the reimbursement of lapsed plan,
within two years from date of lapse, with pending approval.
11-B-3
S.Counselors' Bond Reserue represents the aggregate amount of deductions from
- this account
salesmen and agents' commission, bonuses, and other cash incentives to accumulate a reserve.
Upon separation of a salesman or agent from the company, his accountability will be charged to
this accumulated bond reserves.

G.Accounts Payable -this is a major grouping among current liabilities in the Balance Sheet which
pertains to liabilities of the company as a result of indebtedness due to any corporations,
individual or supplier which shall include, but is not limited to the following :
(1) SSS Premiums Payable - this pertains to SSS premiums/contributions withheld from the
salaries of officers and staff representing employees' contributions to the SSS.
(2) SSS Loans Payable - this pertains to the 5SS salary loan amortization deducted from the
salaries of officers and staff with outstanding loan accounts with the SSS.
(3) Medicare Payable - this represents medicare premiums deducted from the salaries of
officers and staff.
(a) Pag-ibig Payable - this represents the contributions to the Home Development Mutual
Fund(HDMF) deducted from the salaries of officers and staff and remitted by the company
to HDMF every month.
(5) lnsurance Premium Payable - this includes liabilities for unpaid premiums on group
insurance of company's personnel and non-life insurance premiums for company's
property and equipment, etc.

-
T.Taxes Payable this represents value added tax, documentary stamp tax and other taxes
payable by the pre-need company to the government in accordance with RA8424.

S.Accrued Expenses - is an expenses payable that was incurred as of the date of balance sheet
but were not yet paid.

g.Other Liabilities - represents other items not properly classified in any of the preceding liability
captions or items not sufficiently material to warrant a separate caption. lf it is in excess of five
percent l5%l of total liabilities, it shall be stated separately.

c.sTocKHotDERs' EQU ITY

l.Capital Stock Subscribed - this representsthe value at par of the total number of shares of
capital stocks subscribed by the stockholders of the company and duly covered by subscriptions
agreement

2.Capital Stocks - this represents ownership interest of the stockholders in the company
composed of capital stocks issued and outstanding as at report date.

3.Treasury Stocks -this represents stocks already issued but reacquired by the company.

11-G-l
4,Additionql Poid-ln Capitol - this represents the excess paid by an investor over and above the
par-value price of a stock issue and is often included in the contributed surplus account in
the shareholders' equitv section of a company's balance sheet. Additional paid-in-capital can
arise from issuing either preferred or common stock.

S,Deposit For Future Subscription - A separate account in equity to classify a contract to deliver
its own equity instruments from "Outstanding Capital Stock" if and only if :

a. the unissued authorized capital stock of the entity is insufficient to cover the
amount of shares indicated in the contract;

b.There is Board of Directors' approval on the proposed increase in authorized

capital stock (for which a deposit was received by the corporation);

c.There is stockholders' approval of said proposed increase; and

d. The application for the approval of the proposed increase has been filed with the
Commission.

G.Contingency Surplus pertains to cash or in kind contributions of stockholders to cover

-this
any deficiency in the computation of capital impairment as required in the Pre-need Code.

T.Capital Poid ln Excess Of Por - this pertains to payment of shares of stock of the company in
excess of par.

S.Speciol Surplus Funds this refers to reserves pertaining to the fluctuation in the
-
market/appraisal value of investments in stocks, real estate or revaluation of foreign currency.
g.Fluctuotion Reserue - ITF (lnvestment in Trust fundJ - this pertains to the difference between
the market value and the cost of investments of the available for sale financial assets held in trust
funds every end of the year. lt represents the unrealized appreciation/decrease/devaluation in
the market.

Til,Fluctuotion Reserue - Corporote ossets - this pertains to the difference between the market
and the cost of investments of the available for sale financial assets of the company every end of
the year. lt represents the unrealized appreciation/decrease/devaluation in the market.

77,,Retoined Eornings - this is the accumulated earnings of the Company

1l..L Retained Earnings - trust fund - this pertains to the accumulated income of
the investment in trust fund.

11-D-1
 LL.z Retained earnings - corporatefunds - pertains to the accumulated earnings
of the company reduced by whatever losses the company may incur during a
certain accounting period or by dividend declarations.

D. NOMINAL ACCOUNTS

REVENUES

T.Premium Revenue - premiums from sale of pre-need plans shall be recognized as earned
when collected. When premiums are recognized as income, the related cost of contracts shall
be computed, with the result that benefits and expenses are matched with such revenue.

2.Trust Fund lncome - income generated by the Trust Fund shall be included in the Trust Fund
Account under the assets section of the Balance Sheet.

The amount of the trust fund income shall be disclosed in the notes to financial statements. The
portion of the retained earnings representing the trust fund income shall be automatically
restricted to payments of benefits of plan holders and such other related payments as allowed
under the Pre Need Rules.

3.lnvestment lncome - interest lncome shall be recognized in the Statement of lncome as it

accrues, taking into account the effective yield of the asset or liability or an applicable floating
rate. lnterest income and expense includes the amortization of any discount or other
differences between the initial carrying amount of an interest bearing instrument and its
amount at maturity calculated in an effective interest rate basis.
lnvestment income shall likewise include dividends, which are included on the date the shares
become quoted ex dividend.

3.7 lnterest - Mortgage Loans - this represents interest earned during the year arising
from interest bearing loans duly secured by a mortgage of real estate properties at
interest rates duly agreed upon between the parties in accordance with the provisions
of the real estate mortgage contract

3,2 lnterest - Notes Receivable - this refers to the interest earned during the year derived
from interest bearing promissory notes / guaranteed loans, whether short term or long
term. lnterest rates used are in accordance with the provisions of the corresponding
promissory notes.

3.3 lnterest - Short Term lnvestments / Commercial popers - these are interests received
andlor accrued arising from investments in short term money market placements,
repurchase agreements, commercial papers and the like.

77-D-2
 3.4 lnterest <hottel mortgoge loons - this refers to interest earned during the year
pertaining to interest bearing loans duly secured by mortgage on chattels, such as cars or
motor vehicles. This is covered by Chattel Mortgage Contract. lnterest rated used are in
accordance with the provisions of the chattel mortgage contract.

3,5 lnterest - savings deposits - includes interest income earned from savings accounts
deposits and which are already subjected to finaltax.

4. Reolized Goins Or Losses Recorded ln The Stotement Of lncome - realized gains or losses on
the sale of available for sale financial assets are calculated as the difference between the net
sales proceeds and the carrying value. This is recognized in the Statement of lncome when the
sales transaction occurred.

5, Other Operoting lncome - this may include service fee and loading income, surcharge and
amendment fees and miscellaneous income, etc.

5.LHandling Fee - this represents handling charges associated with installment

payments other than annual basis or spot-cast sales.

5.2New lssue Fee - this is normally a one-time charge to new planholders to cover
underwriting and processing service of the application, which can be a fixed amount or a
percentage ofthe contract price.

5.3Amendment Fee - this represents a fixed amount or percentage of the contract price
charged to planholders who apply for amendment of their in-force plans to cover
processing cost and services. This shall also include reconstruction/re- replacement fee
for lost contracts.

5.4Reinstatement lee - this represents a fixed charge or a percentage of the contract

price, charged to planholders applying for reinstatement of lapsed plans to cover
processing cost and services.

5.SSurchorge on Lopsed Plon - this represents additional charge to planholders on past-

due installment payments of lapsed plans, and is different and separate from
reinstatement fee.

6. Dividend lncome - these are income derived from cash dividend declaration on stock
investments, whether collected, accrued, or earned but not yet received.

7. Goin On Sole Of Stock - this account represents capital gains derived from the disposal or sale
of stock investments or investments in securities which is already subjected to final tax.

71-D-3
8. Goin On Sole Of Reol Estate - this account represents capital gains derived from the disposal
or sale of real estate held for sale or capital assets (i.e., townhouse to condominium units) which
are already subjected to final tax.

9. Goin On Sale Of Assets - Others - This account represents gains derived from the disposal or
sale of property other than real estate such as capital assets like property and equipment

70. Rental lncome / lncome On Reol Estate - This pertains to the income generated from the
rental of real property or payment to the company for the use/rental of office equipment or
office premises which are owned or leased by the company. This includes rentals on office space
utilization, bodega, parking space, etc. This income is subject to 5o/o expanded withholding tax as
provided for in the internal revenue code.

77. lnvestment lncome - This refers to any income derived from all other investments which are
not properly classified under any of the other accounts.

72, Miscellaneous lncome - Any income received or earned from various sources which cannot
be properly classified under any of the income accounts as previously defined are taken up under
miscellaneous income. lt includes, among other things, income derived from SSS collection fee,
proceeds from the sale of old newspapers, recoveries from accounts receivables, other collection
and others.

EXPENSE ACCOUNTS

COST OF CONTRACTS ISSUED -

This account pertains to:
l. tncrease (decrease) in Actuarial Reserve Liabilities - this account is equal to the actuarial
reserve as determined by an actuary accredited by the Commission as at the end of the
current year minus the sum of the reserve as of end of previous year and any additional
actuarial reserve liabilities credited during the year from installments of contract price
collected less realized gross income, and any increase in the reserve on account of
change in valuation basis, if any such change occurred during the year
l!. Amount of trust fund contribution for the year.
Itt. !C Registration fees - cost for registrationfiling fee paid to the Commission.
tV. Taxes - pertains to the documentary tax paid by the pre-need company in relation to the
sale of pre-need plans

DIRECI/ACQUISITION COSTS - this is a major grouping of costs and expenses accounts

immediately related to sales of pre-need plans, and of acquiring the same.

1. Commission bonuses, and incentives - compensation paid to sales personnel for the
production of new business, and for servicing existing business pursuant to a formal
"commission agreement".
11-D-4
 2, Collection fees and bonuses - covers incentives granted for collection of non-
commissionable installment accounts by authorized agents.
3. lnsurance
4. Other expenses that constitute direct cost of contracts issued - this account includes
cost of prizes, awards, and incidental expenses incurred in giving prizes and awards, and
other benefits granted to sales personnel for outstanding achievement in selling pre-
need plans.

General and Admi n istrative Expenses

7 .Solories - Basic Salaries and Allowances, including bonuses and 13th month pay of all company
officers and staff.

2.Philhealth Contributions - Employer's/Company's share in the contribution for Philhealth

benefits of officers and staff.

3. SSS Contribution - Employer's/Company's share in the contribution to the SSS for the benefit
of officers and staff of the company.

4. Pag-lbig Contributions - Company's / Employer's share in the contribution to the Pag-ibig Fund
of the Home Development Mutual Fund for the benefit of the employees of the company.

5. Employees Compensotion And Moternity Contributions - Company's / Employer's share in the

contributions to the SSS for the maternity, sickness and disability benefits of all the employees
of the company.

6. Retirement Fund - Company's / Employer's contribution to the Retirement Fund computed on

the basis of a certain percentage of the annual salary of the employees, the actuarial computation
of which is in accordance with the company retirement plan.

7. Hospitalizotion - Employer's contribution for the employee's hospitalization benefits under a

group insurance coverage.

8. Tronsportation Expenses - Transportation expenses of the directors, officers, and employees

and messenger costs in connection with the business operations.

9, Representation Expenses - Representation and entertainment expenses of the officers and

staff for the promotion of the business of the company.

T0.Miscelloneous losses - Losses and other charges that are not classifiable under any of the
expense accounts such as shortages, losses on uncollected accounts, charges, etc.

11-D-5
77. lnvestment Monogement Fees - Fees paid to investment managers for the handling of the
company's portfolio.

72. Medicol Supplies - Expenses incurred by the company for the purchase of medicines and
other medical supplies for the use or issuance to the employees.

7i. Printed Forms - Expenses incurred by the company for printed forms/materials which may be
used in the conduct of the company's business.

74. Stotioneries And Supplies - Cost of various office supplies used in the business operations.

75. Director's Fees - Fees paid to the members of the Board of Directors for their attendance in
the monthly and annual meetings or whatever special meetings that the Board of Directors may
have.

76, Corporote Secretory's Fees - Fees granted to the corporate secretary for services rendered
during the monthly board of directors' meetings and during the annual stockholders' meetings
or any other special meetings that the Board of Directors or stockholders may hold.

77. Auditor's Fees - Professional fees paid to the external auditors for the year end audit
examination of the company's book of accounts. lt also includes the monthly retainer fee,
charges for the auditor's out of pocket expenses and fees for any special audit examination or
consultations, including any audit and tax consultations, which may be required by the company
from time to time.

78, Actuoriol Fees - Professional fees paid to the external actuaries for whatever actuarial
services that they may render for the benefit of the company.

79. Seruice Fees - Fees paid to certain authorized individuals for services rendered to the
company on a contractual of temporary basis. lt also includes the service fees as classified under
the uniform accounting entries of the insurance business pool such as HDMF YRT Pool and the
Pag-ibig MRI Pool.

20. Legol Fees - Retainer Fees and other professional fees paid to external lawyers and the
company's legal counsel for whatever legal service that they may render. lt includes fees for the
legal assistance that they may extend in handling court cases, court settlements, notarial fees,
consultancy fees, and other legal matters.

27. Advertising Expenses - Cost of advertising and promotion of the company, introduction of
new plans, publication of the synopsis of the company's annual report, placement ads, etc.

11-D-6
22. Eonk Chorges - Cost of checkbooks and charges imposed by the banks for overdrafts and
bounced checks, payment of safety deposit box (if any), charges for the regional clearing of
provincial checks and other such charges.

23, Telephone And Telegrom - Cost of telephone services, both local and long distance toll
charges, and telegrams.

24. Light And Woter - Cost of power and water consumption.

25. Toxes And Licenses - Non DeduAible Taxes - Taxes which are not deductible for income tax
purposed such as income tax assessments and penalty charges and renewal of the agents'
certificates of authority.

26. Toxes And Licenses - Deductible Toxes - Taxes which are allowable deductions or expenses
for income tax computation such as payment for business license, mayor's permit, etc.

27. lnterest Expense - The cost incurred by an entity for borrowed funds. lnterest expense is a
non-operating expense shown on the income statement. lt represents interest payable on any
borrowings - bonds, loans, convertible debt or lines of credit. lt is essentially calculated as the
interest rate times the outstanding principal amount of the debt. lnterest expense on the income
statement represents interest accrued during the period covered by the financial statements,
and not the amount of interest paid over that period.

28. Repoirs And Mointenonce - The costs incurred to bring an asset back to an earlier condition
or to keep the asset operating at its present condition (as opposed to improving the asset).

29. Bod Debts / Provision For Doubtlul Accounts - Any uncollectible accounts receivables,
advances to agents and other such receivables which need to be written off shall be charged to
this account.

30. Depreciation Expenses - Periodic amortization of the asset cost of the company's depreciable
fixed assets. lt represents an estimate of the decline in service potential of the asset occurring
during the period.

37. Suspense - This is a temporary classification of accounts pending clarification of certain

aspects of the transaction or compliance of certain requirements, documentation or otherwise.
This account could be either a debit or a credit and needs to be reclassified subsequently as to
their proper accounts. All transactions under this classification must be properly cleared out and
reclassified every end of the accounting period.

32. Miscellaneous Expense - Operating and administrative expenses which cannot be specifically
classified under any of the other expense accounts are recognized as miscellaneous expense.

Ll.-D-7
33. Provision ForToxes - A provision for income taxes is the estimated amount that a business
or individual taxpayer expects to pay in income taxes for the current year.

11-D-8
 111. EXAMINATION CYCLE.

A. ADMINISTRATIVE GUIDELINES

ON SITE EXAMINATION

7.7. PREPARATIONS

Section 46 of the Pre-need Code (PNC) provides that the Commissioner shall, at least
once a year and whenever it considers the public interest so demands, cause an
examination to be made into the affairs, financial condition and methods of doing
business of every pre-need company authorized to transact business in the
Philippines and any other person, firm or corporation managing the fund, affairs
andlor property of such pre-need company...."

The pre-need company will be billed for supervision fee according to the size of the
company beginning January of every year pursuant to lnsurance Circular Letter No.
20L4-L5 dated 15 May 2014.

Basic purpose of Examination

1. To detect as early as possible those companies in financial trouble and/or
engaging in unlawful and improper activities.
2. To develop the information needed for appropriate regulatory action.

On the first day of on-site examination, the examiners present their designation letter to the
President of the company, authorizing them to conduct the said examination (Exhibit A.1). The
examiners are then endorsed by the President to the Chief Accountant who will be responsible
in bringing them to the department where they will working and in introducing them to the
respective officers of accounting department. Upon meeting with the Chief Accountant, the
examiner-in-charge should :

1. Expect that they will be given a permanent area where they can work and leave
in place the records/documents they are using throughout their audit.
2. Discuss the company's record keeping system.
3. Arranging for the availability of schedules and supporting documents
4. Discussing significant changes in company operation.
5. Gives the listingof requirements, i.e., the books/records/documents, etc. that
they will be using in their examination to the officer/employee in charge. (Exhibit
A.2).

111-A-1
1.2 CONCTUDING THE EXAMINATION

During the course of examination, the examiners should constantly remind them of any
record/documents not yet submitted/presented. The examiner also encouraged to discuss tentative
findings with the company's officials, in order to assist the examiners in ascertaining facts and in
verifoing the accuracy of the findings lf necessary, the company will be given at least two (2) to three (3)
days within which to submit the documents not yet presented to the office of Pre-need Division.

Then a report on the examination will be prepared. The examination report shall
contain:

Draft of Findings and Recommendations

: ["J[,'.i::]'.:T;l jy.::'
- Analysis of lnvestment in Trust Funds
Working Trial Balance

: iffffl:lTli ::lt H,llil:i:fi:ffis VS Annuar s'la'lemen'[

- Schedule of all liabilities contain in WBS

- Schedule of Paid-up Capital
- All working papers that the examiners done in the company.
- All the attachment submitted in the acceptance of Annual Statement.
- Designation Letter duly received by the company
- Office Order

LLT.A.2
 DESIGNATION LETTER Exhibit A.1

May 15,2018

MR. JUAN DELA CRUZ, President

X INSURANCE COMPANY
1234 Anywhere Street
Makati, City

Dear Mr. Juan de la Cruz

This will be presented to you by MARIA CLARA, Supervising lnsurance Specialist and
CRISOSTOMO IBARRA, lnsurance Specialist 11of this Commission, whom I have designated as
my representatives to make an examination into the affairs, financial condition and methods of
doing business of X INSURANCE COMPANY as of December 3L,20L7 pursuant to Section 46 of
the Pre-need Code of the Philippines.

Please extend to them your assistance and cooperation for the early completion of the
examination.

Very truly yours,

DENNIS B. FUNA
lnsurance Commissioner

111-A-3
 ON-SITE EXAMINATION ExhibitA.2

Republic of the Philippines

Department of Finance
INSURANCE COMMISSION
Manila

Date

The Chief Accountant

And Other Official Concerned

ln connection with the examination made into the affairs, financial condition and methods of
doing business of the as of please
present and/or submit to the examiner/s the following:

!. Non-Financial Records/Documents

1 For Review andlor Verification

a. Stock and Transfer Book

b. Corporate Stock Certificate (stubs, etc.)
c. Minutes of Stockholders'and Board of Directors' Meetings;
d. Articles of lncorporation, By-Laws and Amendments thereto, if any;
e. General lnformation Sheet duly received by SEC
f. Other Agreements such as Trust Fund Agreement, Sales Counselor etc.
g. Manual of Operating Procedures, if any;
h. Fidelity and Surety Bond for Cashier and Other Accountable Officers;

2 For submission:

a List of all books of account currently being used;

b.Listofstockholderasof-indicatingnationality,numberofsharesowned,
par value per share, percentage of ownership, contributed surplus, and indicate in the
remarks column whether stockholder is an affiliate or sister company;
d. List of current directors and chairman of the Board of Directors, indicating date of
election;
e. List of branches and regional/service officers

111-A-4
11. Financial Records/Documents
1 Adjusted Trial Balance as of cut-off date of examination
2 Auditor's Adjustment
3 Detailed Schedule of
a AllAsset Accounts;
b. All Liability Accounts
4. All Books of Accounts currently being used'
5. Other Records
a. Official Receipts
b. Cash Vouchers
c. Paid/returned Checks
d. Claims Benefits Folders
e. Control of Accountable Forms
f. Bank Reconciliation Statements for all deposits in Checking Accounts
5. Photocopies of proofs of tax payments;
a. Documentary Stamp Tax
b. Value Added Tax
c. Expanded Withholding Tax
d.. Real Estate tax on property owned; and
7 Other records which may be needed from time to time.

The above documents are to be submitted within five (5)days from receipt hereof.

Very truly Yours,

Supervising lnsu rance Specialist

Received:
Name/Signature
Title
Date Received

111-A-5
The company will be given ten (10) days from receipt of the final report to comply with the
requirements based on the results of the examination and/or make good the capital
impairment pursuant to Section 9 of the PNC. Any deficiency in the trust fund, when compared
to the reserve liabilities as reported in the pre-need reserve valuation report, shall be funded by
the pre-need company within sixty (60) days from receipt of the transmittal letter pursuant to
Section 36 of PNC. ln case of insurance premium fund requirement, it should be always equal
or more than the insurance premium reserve liability. The company's trustee banks has always
complied with the liquidity reserve requirement under Section 37 of the PNC.

On the other hand, if upon examination and the company was given enough time to comply to
make good any deficiencies and still not complying, then it will be disclosed that the condition
of the company is one of insolvency, or that its continuance in business would be hazardous to
its plan holders and creditors, the Commissioner shall order the company to cease and desist
order from transacting business in the Philippines and the case will be transferred to the
Regulation Conservation and Liquidation Division (CRL) for possible action under Section 48 and
49 0fthe PNC.

AN N U AL STAT E M ENT VE RI F I CATI ON

2.l FILING

Section 42 & 43 of the Pre-need Code provides that "every pre-need company doing
business in the Philippines shall terminate its fiscal period on the thirty-first (31st)
day of December, and shall annually on or before the thirtieth (30th) day of April of
each year render to the Commissioner annual financial statement as well as annual
financial statement of each type of plan, signed and sworn to by its chief executive
officer, chief finance officer and external auditors in accordance with a uniform
accounting system that shall be prescribed by the Commission, showing in such form
and details the exact condition of its affairs.

Any material omission of disclosures, misstatement or misleading information found

in the financial statements whether interim or annual, shall constitute a violation
and the officer signing such statement shall be subject to the penalty provided for
under Section 42 of the PNC.

Under lnsurance Circular Letter 20L4-L5 dated 15 May 2014, the filing fee of the
pre-need company is twenty thousand pesos (Ps20,000.00) plus a one (1% ) percent
as legal research fund. A penalty of five thousand pesos (P5,000) is imposed for
each day of delay in the filing of Annual Statement.

111-A-6
 2.2 ACCEPTANCE OF ANNUAL STATEMENT

This procedures covers the process of acceptance of Annual Statement including

Annual Statements of Trust Funds for each type of Plan, together with the audited
financialstatements and other required documents. (lSO-QMS Division Procedures
- Document code lC-FPN-DP-001
Before the end of first (1't) quarter of every year, the lnsurance Commission issue an circular letter to
every pre-need company reminding them of the filing of Annual Statement on or before April 30 of that
year (Exhibit A.3 and A.4) furnishing them one copy of each of the annual statement blank form and
extra pages of exhibit and recapitulation and lncome Statement Form for statistical purposes

The required documents to be filed must be attached together with the Annual Statement of Pre-
need company and Annual Statement of Trust Funds for each type of plan, properly and
completely accomplished, otherwise cannot be accepted for filing

2.3, ASSIGNMENT

The Annual Statement are then forwarded to the assigned Supervisor and
examiner for verification and on-site examination.

2.4. MINIMUM VERIFICATION PROCEDURES

1. Notwithstanding that in acceptance of Annual Statement was complete, still, find out if
there were no omissions.
2. Check horizontal and vertical footings of all exhibits, schedules and recapitulations. See
to it that the totals of supporting exhibits, schedules and recapitulations tally with the
controlling accounts in pages 2 and 3 of the Annual Statement. Place tick marks on items
already checked.
3. Check figures in the annual statement against the figures in the adjusted trial balance
and audited financial statements. Any difference should be reconciled.
4. Read Auditor's Opinion for possible audit exceptions which may affect the company's
financial statement. Read also the notes to financial statements for disclosures made by
the auditors regarding the assets, liabilities and net worth accounts. These may
necessitate adjustments. Examples are assets pledged to secure.
5. Prepare a comparative balance sheet of previous and current years (A/S figures).
lndicate sources of increase or decrease in assets, liabilities and net worth accounts. Get
ratios for each and every investment over total assets, particularly those granted to
sister/affiliated com panies.

LLI.A-7
 6. Refer to latest examination report and/or approved annual statement for requirements
not complied. Always compare treatment of accounts with the latest examination
report and approved annual statement. Any variation must be explained.
Know the basis of unaccounted asset account and analyze documents submitted by the
company.
7. Review briefly all the accounts, paying particular attention to lnvestment in Trust Fund,
lnsurance Premium Funds and Cash on hand and in banks.
8. Consolidate all data for additional requirements and call the attention of the company
to submit the additional requirements.
9. While waiting for the submission of the company on the additional requirements,
proceed with the regular verification. List down documents, findings and
recommendation for each account, if any.
10. Prepare a working balance sheet with analysis of unaccounted assets. lndicate reason
for disallowance of an asset account.
11. Prepare consolidated trust fund statement reconciled with the investment in trust fund
in the statement of financial condition (WBS).
12. Compute company's compliance such as:
A. Capital lmpairment
B. Trust Fund Requirement
C. lnsurance Premium Reserve Requirement.
D. Liquidity Reserve Requirement.
13. Consolidate findings, recommendations and conditions on verification and prepare
transmittal letter to the company. ln case of any deficiencies in the computation of
compliances, follow through until deficiencies is fully covered up, conditions are
complied, then the annual statement is finally approved.
14. Check copy of the published Synopsis of the Annual Statement against the copy of the
transmitted approved synopsis, then acknowledged the receipt of published synopsis.

2.5. VERIF|CATION, ANALYSIS, AND EVALUATION OF ACCOUNTS

Guided by the examination/verification procedures, the pre-need examiners verifies and

analyses the accounts in the Annual Statement.

lf documents submitted are sufficient and the analysis of the accounts are completed, the
computation of compliances with the capital requirement/ impairment including trust fund,
liquidity, and insurance premium fund requirements are prepared.

lf additional documents are needed to satisfy the veracity of the result of verification the
examiner may advise the company thru email, before the final result are reviewed.

111-A-8
The results of the verification are reviewed by the Supervising lnsurance Specialist and passed
upon by the Division manager.

2,6 TRANSMITTAL OF THE RESULTS OF EXAMINATION

A transmittal letter is prepared addressed to the Board of Directors advising them of the results
of the verification with attachments of working balance sheet, summary of non-admitted assets
and computation of compliances.

The company is given ten (10) days from receipt of the letter within which to cover up any capital
impairment and in case of trust fund deficiency it shall be funded by the pre-need company
within sixty (60) days from receipt of the transmittal letter pursuant to Section 36 of PNC.

This procedures contains in the ISO-QMS Division Procedures ( IC-FPN-DP-002).

2.7 APPROVAL OF THE ANNUAL STATEMENT

After the company has fully covered up the capital impairment, trust fund deficiencies
and complied with insurance premium reserve liabilities and liquidity reserve requirements, or
if no deficiency or impairment is noted, the Annual Statement is approved and the synopsis of
the annual statement is transmitted to the company for publication in two (2) newspapers of
general circulation in the City of Manila, in compliance with Section 44 of the PNC. The
newspaper publication requirement is subject to lnsurance Circular Letter No. 2016-34 dated 21.
June 20L6.

2.8 PUBLICATION OF THE SYNOPSIS and NEWSPAPERS CLIPPINGS

Pursuant to Section 44 of the PNC, the company is required to furnish the lnsurance
Commission with the pertinent newspaper clippings of the published synopsis within thirty (30)
days from receipt of the approval letter. The newspaper clippings together with the duplicate of
the approval letter are attached to the examination/verification folder and forwarded to
Records Division of the lnsurance Commission for file.

111-A-9
 Exhibit A.3

ANNEX "A"

CHECKLIST OF OOCUIIiENTS TO BE SUBMITTED TO FORM PART OF THE ANNUAL STATEMENTS OF

(NAME OF COM PANY)

Forthe Year Ended 31 December 20

A. One (1) copy of each of the folowing:

1. Audited Financial Statements (AFS) duly stamped by the Bureau of lnternal Reveue (BlR);
2. Adjusted Trial Balance (ATB) signed by the Chief Accountant,
3. Reconciliation Satement of the AFS versus the ATB figures;
4. Detailed Reconciliation Statement of Trust Fund Balances per Trustee Bank(s) versus AFS/AS;
5. Annual Pre-need Reserve Valuation Report together with:
Certification by the actuary and/or any accountable officer of the company on the actuary and
a completeness of the in-force files used in valuation of reserves; and
Certification on the prudent adequacy of the Pre-need reserve that it shall provide at least the
O.
guaranteed contractual benefits under each pre-need contract of the company.
List of current members of board of directors and officers, their respective addresses, position and
6 committee membership;
7 Sworn Statement from the responsible officers of the company stating that:
" Any deficiency in Trust Funds has been duly addressed, attaching the necessary documents as
proofs therof';
Sworn Statement of the company's insurer certifiying the coverage on the life insurance policies or
guarantees on premium payments assumed by the insurance company, indicating the extent, term and
duration of such coverage/guarantees;
Documents supporting the accounts held as corporate assets:
Certification of Custodian for Petty Cash Fund, Revolving Fund, etc.;
Bank reconciliation statements as of 31 December 20_ and 31 January 20_ using adjusted
balance method, together with bank statements, pasbooks and certificates of all current, savings
and time deposit accounts, respectively;
Official receipts, bank validated deposit slips and bank statements to support year-end deposit in
c. transit, if any,
Confirmation of Sales of lnvestment in Bonds and Treasury Bills (Government Securities) together
d.
with Statement of Securities Account of BTr-ROSS as 31 December 20_,ll any
Statement of Holdings as of year-end from the company's custodian bank for dollar denominated
e
bonds, if any;
Statement of Accounts as of year-end from Philippine Depository and Trust Corporation (PDTC) for
f.
scriptless stock investments;
Statement of Net Asset Value (NAV/pu) of Unit lnvestment Trust Fund (UITF), Mutual Funds and
s.
related investments;
Report from a licensed real estate appraiser accredited by the Philippine Association of Real Estate
h.
Appraisers to support any increase or decrease in fair value of real estate properties;
i. Documents supporting investments in commercial papers;
j Documents supporting mortgage loans and other loans accounts;
k. BIR tax returns/payments for the year on lncome Tax and Value Added Tax (VAT);
Summary of taxes paid including Documentary Stamps Tax (DST), withholding taxes and all other
t. taxes:
m. Other documents to support all other corporate assets and liability accounts.
B. USB Flash drive containing excel files of the following:
.,Annual Statements showing the financial condition of the pre-need company and all its exhibits and
" schedules, with amendments on the following:
Table of Contents showing the Summary of lnvestment for the year ended December 31 , 20_ and
-
a
Certification, Notarized and Sealed on pages 48 and 49, respectively;
b
Exhibit 4 - Summary of Monthly Deposits to the Trust Fund with modified columns such as:
(1) Month
(2) Amount Collected
(3) Amout of Required Deposit

11-A-10
 (4) Amout of Actuat Deposit
(5) Remarks
s. Exhibit 5 - Summary of Monthly Withdrawals from the Trust Fund with modified columns such as:
(1) Month
(2) Total Amount of Benefits Paid
(3) Total Amount of Withdrawat
(4) Planholders'Benefits
(5) Trustee's Fees
(6) Taxes
(7) Others
(8) Description for "Others"
2. Annual Statements of Trust Funds per type of plan and allits exhibits and schedules;
3. Complete details of Exhibit 6, Exhibit 7 and Exhibit 8,
4. Adjusted Trial Balance (ATB);
5. Reconciliation Satement of the AFS versus the ATB figures;
6. Detailed Reconciliation Statement of Trust Fund Balances per Trustee Bank(s) versus AFS/AS;
C. PDF copy of Audited Financial Statements (AFS) duly stamped by the Bureau of lnternal Reveue (BlR);

11-A-11
 Exhibit A-4

ANNUAL STATEMENT of Trust Funds for the Year Ended December 31, 20_ of
( Name of Pre.need Companv )

(wPE OF PLAN)
Table of Contents
Pages
1 COilIPANY INFORMATION

EXHIBITS:
2 1 Balance Sheet
3 2 lncome Statement
4 3 List of Trustees
5 4 Summary of Monthly Deposits to the Trust Fund - Per Trustee
6 5 Summary of Monthly Withdrawals from the Trust Fund - Per Trustee

SCHEDULES:
7 1 Government Securities
8 2 Cash on Hand and in Banks
9 3 MutualFunds/UITF
10 4 Short Term lnvestments
11 5 Corporate Bonds
12 6 Mortgage Loans
13 7 Planholders' Loans
14 8 Stocks
15 9 Real Estate
16 10 Other lnvestment
17 11 Accrued lnvestment lncome
18 12 Other Assets
19 13 Accrued Trust Fees
20 14 Accrued Taxes
21 '15 Other Liabilities
22 16 Retained Earnings
23 CERTIFICATION, NOTARIZED AND SEALED

Date of Filing:
Com pany Re prese ntative :

Contact Nunmher:

I C Rep rese ntativel Exa m i n e r:

Date Received:

tt-A-t2
 B. AUDIT GUIDELINES

7. PHYSICAL INVENTORY

Generally, all assets are subject to physical count including those assets covered by Trust
Agreement (lnvestment Management Agreement -lMA). However, focus shall be on the
following :

a. Cash on Hand and in Banks

b. Bonds and Stocks
c. Real Estate
d. Real Estate Mortgage Loan
e. Collateral Loan
f. Guaranteed Loan
g. Commercial Papers
h. Car Loan

Objectives: To prove existence, ownership and amount of the item being examined, and to verify
its status and/or condition (not pledged, restricted, free from lien or any encumbrance).

The physical inventory of cash and investments are usually done soon after the end of the
calendar year, usually on the first quarter of the year, to give a reasonable time to the company
to complete the documents and supporting schedules.

On the day of the count/inventory, the examiner-in-charge informs the company in advance of
the physical count to be done for the year under examination. The company is given reasonable
time, when appropriate, to put the required documents together.

At the time of inventory, the company provides the examiners with the (1) schedules and working
papers relative to the asset being examined (2) items to be counted preferably arranged in a
manner listed in the schedules. A company representative should be available at all times to
answer any queries relative to the asset being counted. Any finding(s), exception(s), differences
are immediately communicated to the company representative.

2. AUDIT PROCEDURES

2.T INVESTMENT IN TRUST FUND:

lnvestment in Trust Funds - refers to the net asset value in a trust set up in a duly licensed trustee
(banks) for providing for the cost of the benefits or services to be rendered. The pre-need
company deposits the prescribed portion of the payments received from the plan holders
pursuant to Sec.31.

111-B-1
Section 30 of R.A. 9829 requires the following:

(a) that pre-need company established a trust fund per pre-need plan category which is
being administered by a trustee bank under trust agreements for the fulfillment of the
company's obligations to its plan holders.

(b) a portion of the installment payment collected shall be deposited by the pre-need
company in the trust fund, the amount of which will be as determined by the actuary
based on the viability study of the pre-need plan approved by the Commission.

(c) assets in the trust fund shall at all times remain for the sole benefit of the plan holders.
The provision of any law to the contrary notwithstanding, in case of insolvency of the
pre-need company, the general creditors shall not be entitled to the trust fund.

(d) The trust fund shall at all times be sufficient to cover the required pre-need reserve.

Section 3L of Pre-need Code - Deposits to the Trust fund

Section 32 of Pre-need Code - Terms and Conditions of a Trust Fund
Section 33 of the Pre-need Code - Responsibilities of the Trustee
Section 34 of the Pre-need Code - Limitations in the lnvestments in Trust Fund

AUDIT OBJECTIVES:

To determine that investments in trust funds are properly classified and valued in the Annual
Statement.

To check the asset investments in trust funds and its corresponding limitations.

To prove existence of the investments and ownership of pre-need plan

To check the liquidity of its investment in trust fund in accordance with liquidity reserve
requirement.

To compute that the investment in trust fund is equal or more than the pre-need reserve
liabilities.

To prove consistency of monthly deposit to the trust deposit.

!tt-B-z
To see to it that the withdrawal is for the sole benefit of the plan holders.

A. Determine if the trust fund investments are properly classified, valued and within the
prescribed limitations provided under Section 34 of the Pre-need Code and Circular Letter
Nos. 08-2012 and 20L7 -28.

The following are to be considered:

FIXED INCOME INSTRUMENTS

not less than
10% of the
Total Trust
Fund
Cash in Savings/ Maintained with and managed by
Time Deposits/ a duly authorized bank with
Unit lnvestment satisfactory examination rating as
of last examination bv the BSP.
lssued by BSP - i.e. Savings
Deposit Account / Overnight
Deposit Facility/ Overnight Term

Corporate Bonds Commercial papers duly Not more than Not more Additional2%
registered with the SEC with a 15% of the than 10% of
credit rating of "L" for short-term Total Trust the allocated
and "AAA" for long-term based Fund amount
on the rating scale of an
accredited Philippine Rating
Agency or its equivalent at the
time of investment.

111-B-3
4. Direct Loans to a) Granted to corporations which Not more than Not more Additional2%
Corporations are financially stable, profitable 5% of the Total than 10% of
for the last 3 years and have a Trust Fund the allocated
good track record of paying their amount
orevious loans.
b)These loans shall be fully
secured by a real estate mortgage
up to the extent of 60% of the
zonal valuation ofthe property at
the time the loan was sranted.
c) The property shall be covered
by a transfer certificate of title
registered in the name of the
mortgagor and free from liens
and encumbrances.
d) The maximum term of the loan
should be no longer than 4 years.
Direct Loans to Not more than
Planholders 10% of the TTF

B. EQUITIES a) lnvestments in equities shall be limited to Not more Not more Additional2%
stocks listed on the main board of a local stock than 30% of than 10% of
the Total the allocated
b) lnvestments in duly registered collective Trust Fund amount
investment instruments such as mutual funds
are invested only in fixed income instruments
and blue chips securities, subject to the
limitations prescribed by laws, rules and

c) Theseinvestments shall include stocks issued

by companies that are financially stable,
actively traded, possess good track record of
growth and have declared dividends for the
past 3 years. Notwithstanding the prohibition
against interests, the trustee may invest in
equities of companies related to the trustee
provided these companies comply with the
foregoing criteria provided in this equity
investments.
d) Existing investments which are not in
accordance herewith shall be disposed of
within 3 years from the effectivity of the PNC.

111-B-4
C. REAL ESTATE a) These shall include real estate properties Not more Additional2%
located in strategic areas of cities and first class than 10% of
municipalities. the Total
b) The transfer certificate oftitle (TCT) shall be Trust Fund
in the name of the seller, free from liens and
encumbrances and shall be transferred in the
name of the trustee in trust for the planholders
unless the seller/transferor is the pre-need
company wherein an annotation to the TCT
relative to the sale/transfer may be allowed.
It shall be recorded at acouisition cost.
c) However, the real estate shall be appraised
every 3 years by a licensed real estate
appraiser, accredited by the Philippine
Association of Real Estate Appraisers, to reflect
the increase or decrease in the value of
property.
ln case the appraisal would result in an increase
in the value, only 60% of the appraisal increase
is allowed to be recorded in the books of the
trust fund but in case of decline in value, the
entire decline shall be recorded.
Appraisal increment should not be used to
cover up the required monthly contribution to
the trust fund.

a) These investments shall have prior Not more than

Other lnvestments approval of the Commission. 20% of the Total
b) Refer to cL No.o8-2012 Trust Fund
Not more than Not more
Refer to CL No.08-2012 15% of the Total than 10% of
Trust Fund thE TTF
Not more than
Refer to cL No.08-2012
15% of the TTF
Not more than Not more
Tier ll Notes Refer to CL No.08-2012 15% of the TTF than 10% of
thc TTF
Not more than
Refer to CL No.08-2012
15% of the TTF

Existing investments which are not in accordance with prescribed limitations shall be
disposed of within three (3) years, otherwise these will be disallowed/unqualified assets in
the trust fund.

111-B-5
B. Prove Existence
L. Conduct physical count (applicable to Real Estate, Mortgage Loans and Service Asset
accounts). Refer to guidelines on Physical lnventory).
2. Check balances with the financial statements submitted by the trustee banks (all
accounts).

C. Prove Ownership

For purchase of real estate and service assets, check original purchase contract or deed of
sale, evidence of payments, Transfer Certificate of Title (TCT), Condominium Certificate of
Title (CCT), Certificate of Ownership (CTO) and Contract Number.

Verify Certificate Authorizing Registration (CAR) or application with the Register of Deeds in
the absence of the TCT or CCT.

D. Check the liquidity of its investment in trust fund in accordance with liquidity reserve
requirement

Get the fifteen percent (15%l of trust fund for each type of plan and/or one hundred
twenty five 1725o/ol of the amount of availing plans for the succeeding year, whichever is higher
is the liquidity reserve requirement (Sec. 37)

Then, compare the total allowable investment stated in Section 37 to the liquidity
reserve requirement

E. Check the sufficiency of trust fund for each type of plans to the actuarial reserve
liabilities of each type of plans.

Check that the trust fund for each type of plan is equal or more than to its actuarial reserve
liabilities contain in the 41) as of examination
Annual Pre-need Reserve Valuation Report (Sec
date. The said report should be duly certified by an actuary accredited by the lnsurance
Commission in the case of contingent plans such as memorial/life plans and by the pre-need
company's external auditors or by a qualified actuary in the case of scheduled-benefit plans
such as pension and education plans, the liabilities of which are not actuarial in nature.

ln case of plans approved by SEC (old basket plans), if the above computation resulted
to a negative (deficiency) please refer to lC Circular # 23-2012 dated 28 Novemb er 2OL2 , f or
re-computation (TPNR-transitory pre-need reserve).

111-8-6
 F. Check accuracy of the collection and deposit made for fully paid and installments of
plans sold
1.The deposits to the trust fund shall be made within twenty (20) days from the end
of each reference month for payments received from plans whether paid for in full or
in installments. (Sec. 31)
2.Failure to make the trust fund deposit shall subject the pre-need company to
penalty per lC Circular # 20L4-L5.
3.Should the Commission discover a deficiency in the trust fund, it shall give notice of
the same to the pre-need company and require the said company to make additional
deposits.

G. Check the legality of withdrawal from the trust fund.

Except for the payment of the cost of benefits or services, the termination values
payable to the planholders, the insurance premium payments for insurance-funded
benefits of memorial life plans and other costs necessary to ensure the delivery of
benefits or services to planholders, no withdrawal shall be made from the trust fund nless
approved by the Commission.

lV.Applicable provisions of the Pre-need Code and lC Circular Letters

Section 30 - Trust Fund
Section 31 - Deposits to the Trust fund
Section 32 - Terms and Conditions of a Trust Fund
Section 33 - Responsibilities of the Trustee
Section 34 - Limitations in the lnvestments in Trust Fund
Circular Letter Nos. 08-2012 and 20L7-28.

2.2 INSURANCE PREMIUM FUND

lnsurance Premium Fund - this represent corporate assets that are restricted to cover the
payment of insurance premiums after the paying period of the pre-need plan. This shall be
equal to the amount computed for the lnsurance Premium Reserves.

The schedule of lnsurance Premium Fund should be presented to tC containing the information
in pp. 1L Sch2 of the AnnualStatement.

Check the existence of lnsurance Premium Fund. This account consist of financial assets such as
stocks, securities, debts instruments, cash equivalents (savings and time deposits).

Conduct physical inventories to prove ownership.

ttl-B-7
2.3 GOVERNMENT SECURITIES

Government Securities - investments in long term government securities and other long term
debt instruments issued by the government and its instrumentalities,

The schedule of Government Securities should be presented to tC containing the information

on pp 23 SCH3-1 ofAnnual Statement.
Documents supporting government securities/treasury bills and other debt instruments issued
by the government of the Philippines and foreign denominated bonds.

L. Confirmation of Purchase (COP)from the buyer

2. Confirmation of Sale (COS) from seller
3. Statement of account from the Bureau of Treasury (if lodged with the BTr)
Any difference resulting from supporting documents against schedule presented should be
reconciled and adequately explained and supported, otherwise it will be treated as unqualified
assets in the financial statements.

2,4 CASH ON HAND AND IN BANKS

Cash on hand and in banks - includes currency or cash items on hand (such as cash items
awaiting deposits and cash in working funds)

The schedule of Cash on hand and in Banks should be presented to lC containing the
information in pp 24 Sch3-2 of the Annual Statement .

A) On hand
L. Funds should be presented for actual physical count during the physical inventory of
company's investment. lt consist petty cash fund, commission fund, documentary
stamps fund, postage stamps fund, change fund, un-deposited collections, revolving
funds, etc.
2. Confirmed amount of funds should reconcile with the general ledger.
3. Cash on hand held by district offices or branches should be supported by a certificate
of the custodian as to the existence and amount.
B) ln Banks
L. Original Bank statements, passbooks, certificate of time deposits should be available
for inspection.
2. Verify bank reconciliation statement as of December 3L, under audit using adjusted
balance (bank balance to book balance). Any discrepancies, if not supported will be
either unqualified assets or non-ledger liabilities. Only interest income not taken up
should be treated as non-ledger assets.

111-B-8
 3. Deposit in transit should be supported by official receipts, bank validated deposit slips,
and passbook or bank statements for the month of January 31, following the year
under audit. Deposit in transit should be deposited within a month, if not, company's
attention will be invited.
4. Thrift banks, Rural Banks, and Savings and Loan associations, and other non-
commercial banks are qualified as assets up to the amount of the PDIC ( Philippine
Deposit lnsurance Corporation) coverage only. At present, the coverage is up to
P500,000.00.
5. Check item 4 if these is authorized to do business and licensed with the BSP, otherwise
treat as unqualified assets and callthe company's attention.

I NTE RN AL CONT RO L QU ESTI O N N AI RE

a. Are all bank accounts and check signatories authorized by the board?
b. Do reconciliation procedures assure the accuracy of the records?
c. Are cash receipts for the day deposited in-tact the following banking day?
d. Are disbursement made by check?
e. Are persons handling cash or other liquid assets properly bonded?

2.5 MUTUAL FUNDS/UNIr //NVESTMENT TRUST FUND (UtrF)

Mutual Funds/Unit lnvestment Trust Fund (UITF)-these are collective investments offered by
bank e.g. stock and mutual funds

The schedule of Mutual Funds/UITF should be presented to lC containing the information in pp

25 Sch3-3 of the Annual Statement .

Documents supporting mutual funds/UITF should be presented submitted

a. Participating trust/mutual fund agreement

b. Confirmation of Participation
c. Original Certificate from lnvestment management Co/Custodian bank showing NAVpu
(net asset value per unit) corresponding number of units of participation as of
examination/verification year.

2.6 SHORT TERM INVESTMENTS

Short -term lnvestments - a money market investment usually savings deposit account (SDA)
with Bangko Sentral.

The schedule of Short-term lnvestments should be presented to lC containing the information

in pp 26 Sch3-4 of the Annual Statement .

111-B-9
Special Deposit Account (SDA) facility of the BSP are fixed-term deposits by banks and trust
entities of BSP-supervised financial entities. lt comes in a 1week, 2 weeks up to 3 months
maturities and subject to a 20% withholding tax.

Documents supporting short-term investment should be presented/submitted

a. Bank certificate of time deposit/participation agreement

2.7 CORPORATE BONDS

Corporate Bonds - cost of placements in long term commercial paper and other long term debt
to a private corporation whether domestic or foreign.

The schedule of Corporate Bonds should be presented to lC containing the information in pp 27

Sch3-5 of the AnnualStatement.

Documents supporting bonds should be presented for verification

a) lf on hand - certificates, confirmation of purchase, agreement, custodianship receipt

b) lf sold - confirmation of purchase, official receipt, bank validated deposit slips, bank
statement/passbooks
c) lf rolled over - roll over documents such as in item a
d) lf matured - official receipts, bank statements, and bank validated deposit slips
I NT E RNAL QU EST I O N QU ESTI ON NAI RE

Does the board exercise controlover investment in corporate bonds?

2,8 MORTGAGE LOANS

Mortgage Loans - outstanding balances of loans secured by collateral

The schedule for real estate mortgage loan should be presented to lC containing the following
information:

a. Name and address of mortgagor

b. Record of mortgage - registry number, entry number city/province, amount of notation
c. Term - date given, date due
d. Amount of original loan
e. Title Number, location and description of property mortgaged
f. Balance - principal and interest

Documents evidencing loans should be presented for physical count

a. Original Certificate of Title

b. Mortgage Loan Agreement - notarized
111-B-10
Review mortgage note, trust deed, authorization for loan

Review appraisals, title to determine that the loanable amount should not at least exceed the
property appraised amount.

2.9 PLANHOLDERS LOAN

Plan holders Loan - loans granted to a plan holder at a prescribed rate, fully secured by the
value of the pre-need plan.

The schedule of Plan holders Loan should be presented to lC containing the information in pp
29 Sch3-7 of the Annual Statement .

A. Established consistency between the plan holders loan and supporting records and the
plan holders loan and the books
L. Determine the population size of the plan holders loans account. The examination
procedure may be based on a random sample or the entire population of the account
depending on its size.
2. Determined the accuracy of information reflected in the schedule. he plan holders loans
schedule shall contain at least the following information:
a. Policy Number
b. lssue Date
c. lssue Age
d. Contract Price
e. Amount of Benefits
f. Unpaid Loan Balance as of year end
g. lnterest (Advance/Due and Accrued)
h. Cash Value
3. Reconcile the plan holders loans with supporting documents
a. Trace the plan contract to the valuation or in-force file to determine if the contract is
in-force.
b. Compare the outstanding loan balance to the record of the amount of the termination
value of the contract to verify collateral
B. Establish consistency between the plan holders loan schedule and the books.
1". Reconcile the total outstanding plan holders loan balance reflected in the schedule with
that in the books and the Annual Statement.
C. Establish the accuracy of the Aggregate Plan holders Loan Amount.
1. Verify the accuracy of the outstanding plan holders Loan amount.
a. Select a sample of loan payments from the cash receipt book'
b. Verify if repayments had been properly recorded/applied in the corresponding
plan holders loan record.

111-B-11
 c. Verify the balance reflected in the schedule if repayments had been considered
in determining the outstanding balances as of financial statement date

To consider that the loan will be qualified as an asset, be sure that the status of policies are
included in the reserves valuation ( i.e, if not included, and it is in-force, set up a corresponding
reserve, or not considered as qualified assets if policy is considered lapsed

The excess of the loan balance over the cash surrender value (CSV) is a unqualified(non-
admitted) assets

Loan balance over the corresponding reserve set up is considered as unqualified (non-admitted)
asset.

2.10 STOCKS

Stocks acquisitions and sale/disposal of other companies' preferred

- all transactions affecting
or common stocks acquired for investment purposes.

The schedule of Stocks should be presented to lC containing the information in pp 30 Sch3-8 of

the AnnualStatement

The original certificate of stocks should be presented for actual physical count.

lf unissued - confirmation of purchase, paid checks

-
confirmation of sale, official receipt, bank statement/passbooks and bank
lf sold
validated depositslip.

Any difference between physical count against schedule presented should be reconciled and
adequately explained.

Ensure that all stocks are in the name of the company, or if not registered under the company,
they should be properly endorsed in favor of the company or accompanied by a power of
attorney.

I NTERNAL CONT ROL QU ESTI ON NAI RE

Are the securities registered in the name of the company?

Are the persons handling securities properly bonded?

Are the duties between the custodian of the securities and the person maintaining the record
of investment separated?

111-B-12
2.11 REAI ESTATE

Real Estate -this represents the cost of real estate properties, whether for office or other uses
which are occupied wholly or in part by the company for the operation of the business, or real
estate held as investment for the production of income., and/or real estate acquired in
satisfaction of debt, including the cost of additions or capital improvement thereon.

The schedule of Real Estate should be presented to lC containing the information in pp 31 Sch3-
9 of the Annual Statement

Documents supporting ownership by the company should be presented for actual physical
count or inspection:

1. Original transfer certificate of tile, appraisal report if necessary

2. For newly acquired property - deed of absolute sale; proof of payment (i.e cancelled
checks, official receipts, cash vouchers.)
3. For installments sales - contract agreement, installment receivable
4. ln case of condominium projects - condominium certificate of title (CCT). lf not yet
available, the pertinent contract/agreement.
5. ln case of foreclosed properties - court receipt, loan balance including capitalized
interest and penalties.
6. lf title is with the Register of Deeds - application for registration duly acknowledged
by the Office of the Register of Deeds and the official receipt for filing fee.
7. Real Estate receipt and tax declaration of property.

2.72 OTHER INVESTMENTS

Other lnvestment - this represents all other investments which the company may have but
which cannot be properly classified under the investment account previously mentioned. (i.e.
accounts under trust, IMA account)

The schedule of Other lnvestment should be presented to lC containing the information in pp

32 Sch3-10 of the Annual Statement.

Prove existence and ownership of the investment made.

1. Conduct physical count

2. Ensure that investment are in the name of the company or if not, they are properly
endorsed in favor of the company or accompanied by a power of attorney.

111-B-13
2.73 ACCRUED INVESTMENT INCOME

Accrued lnvestment lncome - this shall represent interest receivable pertaining to interest
accrued arising from cash and cash equivalents, financial assets and loans and receivable.

The schedule of Accrued lnvestment lncome should be presented to lC containing the

information in pp 33 Sch3-11 of the Annual Statement.

Check the accuracy of accrued investment income by checking (compute) that the interest
income is accrued on a timely basis, net of withholding tax.

Any difference resulting from the schedule and examiner's computation should be reconciled
and adequately explained.

2. 7 4 ACCO U NTS/N OT ES R ECE tV ABLE

Account description (see PNUCA chart of occount)

The schedule of Accounts /Notes Receivable should be presented to lC containing the

information in pp 34 Sch3-12 of the Annual Statement.

Prove existence of the amounts owed to the client. This should be stated at net realizable value.

Review the aged of Accounts/Notes Receivable for significant past due accounts

lnquire from management explanations for long outstanding accounts.

2.15 PROPERW and EQUIPMENT

These includes furnitures, fixtures, office equipment and transportation equipment.

The schedule of Property and Equipment should be presented to lC containing the information
in pp 35 Sch3-13 ofthe Annual Statement.

This should be accounted for net of depreciation computed for 5 years life.

2.16INVENTORIES

lnventories - (it is applicable for life plans) it consists of caskets, urns and memorial lots, shall
be carried at the lower of cost or net realizable value.

The schedule of lnventories should be presented to tC containing the information in pp36 Sch3-
14 of the Annual Statement.

Conduct physical count. Refer to guidelines on Physical lnventory

111-B-14
2.77 OTHER ASSETS

Other Assets - this account is a major non-current asset grouping in the balance sheet which
absorbs subsidiary account balances amounting to less than five percent (5%l of Total Assets. lf
more than five percent (5%) each subsidiary account shall be presented separately in the trial
balance.

The schedule of Other Assets should be presented to lC containing the information in pp 37

Sch3-15 of the Annual Statement.

This account should be fully explained as to the nature and documented.

LIABITITYACCOUNT

3.L PRE.NEED RESERVES

Pre-need Reserves is the amount of liability which the pre-need company establish for a plan
holder to meet the contractual obligation as it falls due

To establish the completeness of the in-force orvaluation file and the accuracy of the pre-need
reserve liabilities.

1. Compare the Actuarial Valuation Report against the Pre-need Reserves reported in the
pp, 38 Sch 4 of the Annual Statement. lt should be reconciled with each type of plan of
the company.
2. The Actuarial Valuation Report consists of two parts; (a) Valuation Report for the
product approved by Securities and Exchange Commission (SEC), old plan and, (b)
Valuation Report for the product Approved by the lnsurance Commission. (lC), new
plan.
lf there is a deficiency in the AVR Computation Approved by the SEC against the
trust fund establish in the old basket of plan, a Manual Re-Computation shall be done.
Refer to CL 23-2012 for guidonce in the Computation of TPNR ond compare agoin to the
octuariolvaluation report, if TPNR wos considered in the voluation report..
3. lf the AVR Computation reasonably represents the amount of Pre-Need Reserves,
proceed with the checking of Pre-Need Reserves versus the Trust Fund Account.
4. The amount determined as Pre-Need Reserves will then be checked against the Trust
Fund (net of Due from Trustee and Planholder's Benefit Payable, both of which are
reported as part of Corporate Liabilities)

111-B-15
 The Trust Fund (net of Due from Trustee and Planholder's Benefit Payable) should
always be greater than or equal to the Pre-Need Reserves, otherwise a Deficiency in the
Trust Fund shall be recognized, for which the company is required to cure by distributing
to the trust fund, either from corporate assets or cash infusion.

3.2INSURANCE PREMIUM RESERVE _

This includes the cost of purchasing insurance premiums after paying period of the pre-need
plans. This is additional liabilities of the company as Other Reserves in the AVR

The company shall set-up other provisions in accordance with PAS 37 to cover its obligations such
as lnsurance Premium Reserve.

Unless the Commission shall so specifically require, a company may at its option to set up other
provisions as a prudent measure.

3.3 PTANHOLDERS' BENEFIT PAYABTE

This account includes amounts payable to planholders and beneficiaries, in the course of
settlement, and incurred but not reported claims on the pre-need contract such as due but
unpaid matured benefits, surrender benefits and annuity payments.
The schedule of Planholders' Benefit Payable should be presented to lC containing the
information in pp 40 Sch6 of the AnnualStatement.

To establish the completeness/accuracy of the schedule reported planholders'benefit payable

and that the claimants are being treated fairly.

1. Trace the unpaid benefit claims from the register to the schedule
2. Verify that the length of time required to settle claims is reasonable and fair.
3. Trace a sample of closed case without payment, and verify the grounds for resisting
claims by examining application and claims files.

3.4 COUNSELORS' BOND RESERVE

This account represents the aggregate amount of deductions from salesmen and agents'
commission, bonuses, and other cash incentives to accumulate a reserve. Upon separation of a
salesman or agent from the company, his accountability will be charged to this accumulated bond
reserves.
To check the consistencies of the amount as of balance sheet date.

Determine the consistencies between detailed salesmen and agents' account balances from
the subsidiary ledger to the general ledger and annual statement.

111-B-16
 3.5 ACCOUNTS/NOTES PAYABLE

This is a major grouping among current liabilities in the Balance Sheet which pertains to
liabilities of the company as a result of indebtedness due to any corporations, individual or
supplier

The schedule of Accounts/Notes Payoble should be presented to lC contoining the information in

pp 4i Sch9 of the Annuol Stotement.

Verify thot the occounts/notes poyoble omount in the triol bolance are properly recorded in the
Annuol Stotement.

3.6 TAXES PAYABLE

fhis represents value added tax, documentary stamp tax and other taxes payable by the pre-
need company to the government in accordance with RA8424.

The schedule of Taxes Poyoble should be presented to lC contoining the informotion in pp 44

Sch10 of the Annual Statement.

To verify the volidity ond odequocy of tox liabilities

1. Determine the tox bose. Multiply it by the applicoble rote to orrive at the tox due for
the year.
2. Add the tax due for the yeor to the beginning bolonce of taxes poyoble.
i. Deduct poyments ond ony compromise tox settlements mode during the yeor to
orrive at net toxes payoble os at end of the year.
4. Compore figure with the reported bolonce in the Annuol Statement. Any moterial
differences should be explained and odjusted occordingly.
5. Voluotion of tax liobilities should be in accordonce with the provisions, revenue
regulations of BIR and other reloted rulings.

3.7 ACCRUED EXPENSES

This represents expenses olreody incurred but not yet poid.

The schedule of Accrued Expenses should be presented to lC containing the informotion in pp45
Sch.ll of the Annuol Stotement.

To determine volidity ond odequocy of the liobilities recorded.

1. Obtain schedule/detoils of occrued expenses ond other poyables.

2. Accrued expenses sholl be volued ot omount thot maybe established in the
exominotion.
LLt-B-t7
 3.8 OTHER IIABItlTIES

- represents other items not properly classified in any of the preceding liability captions or
items not sufficiently material to warrant a separate caption. lf it is in excess of five percent
(5%l of total liabilities, it shall be stated separately

The schedule of Other Liobilities should be presented to lC contoining the information in pp46
Sch.L2 of the Annuol Statement.

To determine validity and adequocy of the liobilities recorded

1. Obtain schedule/detoils of liobilities

2. For dividends payoble, verify declaration of cosh dividends ogoinst minutes of
meeting ond boord resolution, determined how much has been poid ond not yet paid
os of exominotion dote.
3. Other Liobilities shall be valued ot omount that maybe established in the
examinotion.

STOCKHOTDERS EQUITY

lncludes the following occounts:

1.. SUBSCRIBED CAPITAL STOCK
Represents the copital stock subscribed os ot report dote

2. SUBSCRIPTION RECEIVABLE
This represents the unpaid portion of the subscribed capital stocks of the company.

3. CAPITAL STOCK PAID-UP

This represents the total par value of fully paid shores, including stock dividends less ony
treasury stocks, for which stock certificotes have been issued.

4, UNISSUED CAPITAL
This represents the unissued capital stock and does not include treqsury stocks.

5, AUTHORIZED CAPITAL STOCK

This represents the total copitolizotion of the company as outhorized by both the
lnsuronce Commission ond the Securities and Exchange Commission. A memorondum
entry for the totol omount of its closses of stocks, the totol number of shares sholl be
mode in the books.

111-B-18
 6. CONTRIBUTED SURPLUS
This represent contributions of stockholders to the compony in compliance with the
requirement of the Pre-need Code (e.9. cosh infusion)

7. TREASURYSTOCKS
This represents stocks olready issued but reocquired by the compony.

8. CAPITAL PAID IN EXCESS OF PARVALUE

This represents premium on sale of copital stocks.

9, FLUCfiUATION RESERVE - STOCKS, BONDS, oOVERNMENT SECURITIES

This represent the unreolized oppreciotion in morket value.

1.0. FLUCTUATION RESERVE- FOREIGN CURRENCY

This represents difference in the voluotion of foreign currency deposits/investments
resulting from foreign currency fluctuotion using BSP guiding rate at the end of the
yeor.

11. REVALUATION RESERVE- REAL ESTATE

This represents oppreciotion or increose in book volue.

1.2. RETAINED EARNINGS

This represents the bolonce of the accumulated profits or losses from compony's
operotions.

To prove existence and occurocy of stockholders equity

A. CopitolStock
1. Obtoin current list of stockholders with their respective number of subscription ond
paid-up capital
2. Troce to the stock ond tronsfer book and verify/exomine movements in the
stockh ol d e rs a ccou nts.
3. Test exomine certificote stubs.
4. Verify omounts ore properly recorded on the Annual Stotement
5. Verify complionce with ony prior exominotion findings ond requirements.
B. Contributed Surplus
1. Obtain current list of stockholders with their respective amounts of contributed
surplus.
2. For any increase/decrease in contributed surplus, verify supporting documents. Any
differences should be reconciled.
C. SpecialSurplusFunds
1. Obtain current stock market quotation, appraisal report for real estate, BSP quotation
for foreign currency valuation.

111-B-19
2. Test check computations and tie-up balance per schedule with balance per books.
Valued capital stock and contributed surplus at actual amount, while for special
surplus is at market value/appraised value.

111-B-20