Money & Banking

Adoption of Ind AS by insurers deferred till 2020-21

G Naga Sridhar Hyderabad | Updated on January 11, 2018 Published on July 04, 2017

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Its implementation in the current form will lead to mismatch in asset-liability valuation, says IRDAI

The Insurance Regulator and Development Authority of India (IRDAI) has deferred the implementation of Indian Accounting Standards (Ind AS) by insurance companies till 2020-21.

Rule 4 of the Companies (Indian Accounting Standards) (Amendment) Rules 2016 states that “the Banking Companies and Insurance Companies shall apply the Ind AS as notified by the Reserve Bank of India (RBI) and Insurance Regulatory Development Authority (IRDA), respectively.”

This empowers IRDAI to have a regulatory override and notify an exclusive date for implementation of new accounting standards by insurers.

It may be noted that many other global corporates such as Dr Reddy’s have already implemented Ind AS along with International Financial Reporting Standards (IFRS).

Insurers have been given more time because of mismatch in valuations. Even as Ind AS is about to be adopted, the International Accounting Standards Board in May 2017 issued the much-awaited IFRS 17 Insurance Contracts that replaces IFRS 4, which was brought in as an interim standard.

As IFRS 4 has allowed companies to carry on accounting for insurance contracts using national accounting standards, resulting in a multitude of different approaches, it is difficult for stakeholders to compare the financial performance of otherwise similar companies.

It is in this context that IRDAI had to take a review of implementation of Ind AS in the insurance sector in India.

In a recent meeting, the IRDAI board took note of the ‘peculiarities’ of the insurance sector in India, particularly the fact that India does not have a standard equivalent to IAS 39 on Financial Instruments: Recognition and Measurement.

“The implementation of the Ind AS in the present form will lead to a position where assets will be valued on fair-value/ market-value basis and liabilities will continue to be valued as per the existing formula-based approach,” the authority said in an order sent to the insurers.

According to Nilesh Sathe, Member (Life) and in-charge of finance and accounts at IRDAI, this is likely to lead to mismatch in the asset and liability valuations and also cause volatility in the financial statements of insurance companies.

Further, compliance costs would be incurred twice, once immediately on implementation of Ind AS and secondly when IFRS 17 is implemented in India.

So, insurers can now breathe easy with regard to Ind AS and prepare for its launch in two years from now.

Ind AS governs the accounting and recording of financial transactions as well as the presentation of statements such as profit and loss account and balance sheet of a company.

It has been evolved as a compromise formula that tries to harmonise Indian accounting rules with the IFRS.

Published on July 04, 2017
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