Internal Control of Fixed Assets: A Controller and Auditor's Guide

CHAPTER TEN 10

Insurance for Fixed Assets

IN THIS CHAPTER WE cover the valuation requirements of fixed assets for purposes of insurance. This material, complete in itself, should be supplemented through discussions with insurance professionals because there are a lot of factors involved in the placement of the correct amount of insurance.

A basic principle of internal control is protection of the firm’s assets by those responsible. Inasmuch as accidents do happen, it is incumbent on management to have sufficient insurance to try to make the company “whole” in case of loss. This is accomplished by purchase of insurance, in which the insurance company, in exchange for a premium, promises to reimburse the company in case of loss.

In exchange for a certain small loss (premium) the company is protected against an uncertain large loss (fire, etc.). A review of overall insurance coverage is essential as part of internal control, but is outside the scope of this book. Insurance professionals, often with the major brokerage firms like Marsh and Aon, have the expertise both to place the insurance and work with the company in all aspects of protection to mitigate the possibility of loss.

A word about “self-insurance.” Many large companies are diversified geographically, which means that no single catastrophe (fire, flood, earthquake) will affect more than one location. Assuming the worst, large companies may be able to absorb the costs associated with a single catastrophe. Often they will ...