Businesses often suffer sudden financial hardship as a consequence of stock loss due to fire, flood, water ingress, leakage or some other insured event. This data is usually enough for most businesses to process a claim however there are situations in which more information may be required. Typically, insurance companies and surveyors need CA audits to back up the financial claims. In many cases, they also request a certificate to justify crucial calculations. A well-prepared Certificate of Assurance (CA) helps in reducing claims queries from the surveyor and ensures that the loss is calculated in a consistent manner. This also guarantees that the facts presented in the claim are accurate.
Why insurers ask for a CA Certificate in stock claims
Stock movements and valuations should not be judged solely on an incident. It is critical to evaluate the movement, value and existence of the stock. Internal checks are made by the cashier, supervisor and accountant. The cashier reconciles all cash handled with the records, the supervisor checks all sales and purchases invoices and the accountant verifies that records tally with the GST records and the stock register. The surveyor may treat the information as unreliable if the documentation provided is disorganised. This may result in the use of protective assumptions which will lower the amount paid out. An Auditor’s Certificate as to the computation of dividends and a Company Audit Certificate confirm that the accounting records have been properly maintained. The former statement, however, is typically required by the government for taxation purposes. A CA Certificate gives a formal assurance that the trading account, share valuation and purchase reconciliations have been prepared from available records.
The surveyor usually requires the following information:
- Trading Account up to Date of Loss to verify stock movement and gross profit trends
- Stock statement and valuation workings to confirm how the value of damaged stock is computed
- While comparing books to GSTR-2A/2B, the GST return reconciliation has to be checked against the books. This is to ensure that all purchases as recorded in the books are supported by corresponding supplier invoices visible in the GST records. The GST records must include invoice wise details.
A Certificate of Authenticity is the record which shows that the CA is the issuer of the certificate and, in effect, the public key really belongs to the subject of the certificate.
What a CA Certificate should cover
For documentation of insurance claims, a strong letter from a certified public accountant (CA) should be on a letterhead of a certified public accountant firm. It should state clearly that the letter is issued for purposes of insurance claims documentation. It should contain the following parts:
1) Client and claim reference
Insurance certificates for the business should include the name and address of the business covered, the GSTIN number if applicable, the location of the damage, the date of the incident, and the cause of the damage.
2) Scope of verification
The certification should include details of all the records audited including purchase invoices, stock register, sales ledger, GST returns, purchase ledger, GSTR-2A/3B and expense ledgers. This is so because the accreditation is often dependent on data generated by the customer.
3) Trading Account up to Date of Loss
It should be acknowledged in the certificate that a Trading Account has been prepared for the specified period which is usually from 1st April up to the date of the loss and this should be attached as an annexure.
4) Stock statement / stock valuation workings
The certificate should mention that the stock statement and the valuation thereof were as on the date of loss or the cut off date and are attached as an annexure. The statement must include details of the total stock value as annexed and the handling of any stock that is damaged or in transit.
5) Books vs GSTR-2A/2B purchase reconciliation
The reconciliation of purchases should be certified as correct for the period ended and that it has been attached. The purchases as per books and the purchases as per GSTR 2A/2B need to be compared and the difference noted. This difference is to be noted by referring to the mismatch notes.
In case of any discrepancies, the difference between the GST claimed in GSTR 3B and the GST accounted in the books of accounts should be clarified from the business.
6) Purpose and restriction clause
The certificate should clearly indicate that it is only intended for use with the insurance company or the surveyor in connection with the claim and should not be employed for any other reason.
7) Disclaimer
This report is based on the information provided by the insured, and should not be considered as a statutory audit. Verification of the information was based on the records and explanations provided by the insured.
It is the insurers/surveyors responsibility to independently verify the information contained within this report.
Practical benefit of a properly drafted certificate
For the surveyor, a Certificate of Authenticity issued by the German Chamber of Commerce and Industry (Deutsche Industrie- und Handelskammer) works in the same way as a “summary assurance document”. The software enables the surveyor to gain a quick overview of the entire claim file, locate related documents and computations, and check the calculations swiftly. This facilitates faster decision-making, improves clarity, and reduces need for subsequent queries.
Conclusion
A Certified Practising Accountant (CPA) Certificate is often required for stock loss claims as it ties together a trading account, stock valuation and GST reconciliation into a structured claim. This information aids in the preparation of a claim file which is strengthened by annexures, scope, purpose, restriction and disclaimer. This aids in minimising delays and deductions that are avoidable.
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In regards to assistance with stock insurance claim documentation and also the certification required in CA (Trading Account up to and including the date of loss, stock valuation workings, books Vs GSTR 2A/2B reconciliations, annexures and also surveyor’s query replies), please email casgpj@gmail.com.
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