Law on compulsory insurance of auditors

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Below is a brief analysis of the law: why it was adopted, whom it affects, what obligations and rights arise for the parties and what to pay attention to when concluding a contract. The analysis does not replace the text of the law: the file for download was published a long time ago and may not reflect the latest amendments, so before applying it check against the current version at adilet.zan.kz.

Purpose of the law

The Law of the Republic of Kazakhstan "On Compulsory Civil Liability Insurance of Auditors and Audit Organizations" establishes the legal, economic and organizational foundations of this type of compulsory insurance. Its task is to guarantee that a client who has suffered property damage because of an error or violation in the conduct of an audit will receive compensation, even if the audit organization lacks sufficient funds of its own. For the audit organization itself, the contract serves as financial protection: a client's claim within the sum insured is paid by the insurer.

Who the law affects

The law applies to audit organizations that carry out audit activity in the Republic of Kazakhstan and is applied together with legislation on audit activity. Having a valid compulsory insurance contract is one of the conditions for lawful work in the audit services market. The law is also important for clients: companies commissioning an audit have the right to make sure that the auditor's liability is insured and to understand what compensation they can count on.

Basic concepts

  • Policyholder — the audit organization that has concluded a contract with an insurer.
  • Insurer — an insurance company holding an ARDFM licence for the relevant class of insurance.
  • Beneficiary — the person who has suffered property damage as a result of an audit, primarily a client of the audit organization.
  • Object of insurance — the property interest of the audit organization connected with its obligation under civil legislation to compensate harm caused in the conduct of an audit.
  • Insured event — the fact of such an obligation arising, confirmed in the manner established by law, for example by a court decision that has entered into legal force.

Main obligations and rights of the parties

The audit organization

  • conclude a compulsory insurance contract and keep it in force throughout the period of audit activity;
  • provide the insurer with accurate information that affects the assessment of risk;
  • notify the insurer in good time of claims and lawsuits brought;
  • assist the insurer in establishing the circumstances and the amount of the harm caused.

The insurer

  • issue an insurance policy and familiarize the policyholder with the terms of insurance;
  • review the application for an insurance payment and make the payment within the deadlines established by law and the contract;
  • keep confidential the information about the policyholder and its clients obtained in connection with the contract;
  • has the right to request documents confirming the occurrence of the insured event and the amount of harm.

The injured client

The beneficiary has the right to demand compensation within the sum insured. If the harm exceeds the contract limit, the difference is recovered from the audit organization in the general manner established by civil legislation.

Sum insured and premium

The law establishes the minimum amount of the sum insured, expressed in monthly calculation indices (MCI), and limits the amount of the insurance premium. The parties determine the specific values by agreement within these requirements. Since the MCI is approved each year by the law on the republican budget, the monetary equivalent of the minimum amount changes — this should be taken into account when renewing the contract.

What matters in practice

  • Choose the sum insured with the scale of your clients in mind: the minimum limit may prove insufficient when auditing large companies.
  • Check how the contract defines the period of liability — by the date the audit was conducted or by the date the claim was made. This determines whether claims relating to audits of previous years will be covered.
  • Study the exclusions: intentional acts, services that are not audit services and claims not connected with property damage are usually not covered.
  • Do not allow gaps between contracts: a claim made during a period without insurance will remain without cover.
  • Keep the audit working papers: in a dispute they are needed both to defend your position and to settle the insured event.

How to use the text of the law

The law has been amended, so before concluding a contract or in a dispute with the insurer, check against the current version in the information and legal system of normative legal acts of the Republic of Kazakhstan at adilet.zan.kz. The meanings of insurance terms found in the law and the contract are explained in the glossary.

You can calculate the approximate cost of a policy in the auditors' liability insurance calculator, and other programmes for professional activity are described in the liability insurance section. To choose terms and compare insurers' offers, you can get a consultation from a broker.