IND-AS accounting framework partial rollout from April 2024
- August 8, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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IND-AS accounting framework partial rollout from April 2024
Subject: Economy
Section: Capital market
Context:: Top 15 insurance companies, across life and non-life, to adopt the new IND-AS accounting framework from April 1, 2024.
Key Points:
- Insurance Regulatory and Development Authority of India (IRDAI) has announced partial roll-out of new accounting standards for the insurance industry.
- The government is expected to roll out IND-AS 117 following recommendations received from the National Financial Reporting Authority (NFRA) based on the proposals by the ICAI (Institute of Chartered Accountants of India). The new accounting standard will replace Ind AS 104, Insurance Contracts.
- The move is aimed at bringing Indian accounting practices closer to global standards. It will enable stakeholders to understand insurers’ risk exposure, profitability, and financial position accurately.
- The move is set to take the insurance industry towards a risk-based capital regime from the current factor-based solvency regime and will also bring the industry closer to the new IND-AS.
- Designed in coordination with IFRS-17, the revised standard under IND-AS 117 will mandate insurers to explicitly declare unbiased estimates of future cash flows, discount rates reflecting the contracts’ cash flows, and adjustments for non-financial risk. Further, revenue will no longer be equal to written premiums but to the change in contract liability.
Why limited rollout ?
- The identified 15 companies that have foreign equity partners and/or strategic collaborations for the purpose. The reason here is that these entities may have estimates of the financials as per parallel IFRS-17 for their consolidated balance sheets.
- Decision taken to allow more time to smaller insurers for adopting the accounting standard. This is because their solvency is more likely to be impacted, leading to higher capital requirements, industry sources said, adding that implementation for PSU insurers is also expected to take some time.
- The transition is expected to hurt insurance companies with a higher share of relatively riskier products such as ULIPs (unit-linked insurance plans).