Auditing an insurance broker's or corporate agent's commission income means testing two things together: whether the commission actually earned on each policy — which varies by insurer, product line, and whether the policy is a fresh issue or a renewal — has been recognised in the right period relative to the policy's effective date, and whether the commission rate applied is within the limits IRDAI prescribes for that product category, since an intermediary receiving commission above the regulatory cap (sometimes disguised as a separate marketing or service fee arrangement with the insurer) is a compliance exposure the statutory auditor needs to flag even though it isn't, by itself, an accounting error in the commission figure.
Commission recognition timing
Commission is generally earned when the policy is issued (for a fresh policy) or renewed (for a renewal), and should be recognised at that point rather than when the insurer actually remits payment, which frequently lags policy issuance by weeks. An intermediary recognising commission only on receipt of the insurer's payment advice will understate income for policies issued near the period end where the payment advice arrives in the following period.
- 01Reconcile the policy issuance/renewal register to the commission income bookedEvery issued or renewed policy in the period should have a corresponding commission entry, whether or not the insurer has yet remitted payment — a gap usually means commission is being recognised on a cash basis rather than an accrual basis.
- 02Test commission rates applied against the insurer agreement for that productRates differ by insurer and product (life, health, motor, fire) and often step down for later renewal years on the same policy — confirm the rate used matches the specific agreement and renewal year, not a flat assumed rate.
- 03Check for commission clawback on early policy cancellation or lapseWhere a policy is cancelled or lapses within a free-look or short period, insurers often claw back commission already paid — confirm the intermediary has provided for or reversed commission on policies at risk of clawback.
- 04Reconcile commission statements received from each insurer against the booksThe insurer's own commission statement is independent corroboration; a persistent unreconciled variance by insurer is worth investigating specifically, not writing off as an immaterial rounding difference.
IRDAI commission caps and related compliance touchpoints
IRDAI prescribes maximum commission or remuneration percentages payable to intermediaries, varying by product line and sometimes by distribution channel, under its commission and expenses-of-management regulations. The statutory auditor of an intermediary is not auditing the insurer's compliance, but should be alert to commission arrangements — including any additional 'marketing support' or 'infrastructure' payments from an insurer on top of stated commission — that in substance exceed the prescribed cap, since these carry regulatory risk for the intermediary and sometimes indicate a related-party or facilitation arrangement that needs separate disclosure consideration.
Regulatory requirement
The specific commission caps, the regulations governing them, and the categories of permissible additional payments from insurers are set by IRDAI and have been revised more than once. Confirm the currently applicable regulations and caps for the specific product lines involved before concluding on this area.
A pattern of separate 'service fee' or 'marketing' invoices raised by the intermediary on the same insurer whose commission appears capped at the regulatory limit is worth examining closely — it is a known structure for routing additional, uncapped payment outside the regulated commission line.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Revenue, receivables & cut-offRevenue recognition testing in a statutory auditThe transfer-of-control test that governs when a sale is recognised, the misstatement patterns that recur in practice, and what evidence ties a recognised sale to an underlying document.
- Related parties & disclosuresRelated-party transaction testing under AS 18 / Ind AS 24Testing related-party transactions means proving the population is complete before checking what management already disclosed.
- CARO & Companies ActSecretarial compliance checklist for a statutory auditorBoard meeting frequency, statutory registers and ROC filing timeliness, read as evidence of compliance culture rather than a secretarial checklist in its own right.
- Revenue, receivables & cut-offDebtors confirmation procedure: balance confirmation in practicePositive versus negative confirmation, selection criteria, handling non-responses and disputes, and the alternative procedures that cover the gap when confirmations fail.
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