High inherent risk elements in financial statements of listed South African long‐term insurers

The objective of this research is to identify those industry‐specific elements of the financial statements of listed South African long‐term insurers that are potentially exposed to the highest level of inherent risk. Auditors of these companies should focus on these elements to ensure effective and efficient audits. An exploratory literature study was conducted. A questionnaire was subsequently used to identify significant accounts potentially exposed to the highest level of inherent risk. Relative levels of inherent risk were measured using a “Relative Inherent Risk Index” that had been specifically developed as part of this research. The research indicates that policy liabilities and operating profit from long‐term insurance activities are potentially exposed to a significantly higher level of inherent risk than the other industry‐specific elements of the financial statements of long‐term insurers.