NFRA recently examined proposals for a new standard, Ind AS 117, which will replace Ind AS 104 and enable Indian insurance companies to present globally comparable financial information. The new standard aligns with India’s policy of embracing international best practices.
The National Financial Reporting Authority (NFRA) recently held a meeting to examine the proposals received from the Institute of Chartered Accountants of India (ICAI) for a new standard for accounting of insurance contracts. In this article, we will explore the key highlights of the meeting and the proposed new standard.
1. NFRA Examines Proposals on New Standard for Accounting of Insurance Contracts
The National Financial Reporting Authority (NFRA) recently held a meeting to examine the proposals received from the Institute of Chartered Accountants of India (ICAI) for a new Standard (Ind AS) for accounting of insurance contracts. The meeting was attended by the Executive Body of NFRA and part-time members of the Authority from MCA, CAG, ICAI, and the accountancy profession.
2. NFRA’s Recommendations and Notification Process
After examining the proposals, NFRA will share its recommendations with the Ministry of Corporate Affairs. The Central Government under Companies (Indian Accounting Standards) Rules 2015 will then consider and notify Ind AS 117. Once notified, Ind AS 117 will replace the currently notified Ind AS 104, Insurance Contracts.
3. Overview of IFRS 17
IFRS 17, which was originally issued by the International Accounting Standards Board (IASB) in May 2017, is a complete overhaul of the accounting for the insurance industry. It is considered the first truly international IFRS Standard for insurance contracts and is designed to help investors and other users better understand insurers’ risk exposure, profitability, and financial position. Globally, it became effective from 1st January 2023.
4. Unique Features of IFRS 17
IFRS 17 is specifically designed to capture the unique features of the insurance and investment contracts of the Insurance Entities. It would entail a paradigm shift in the measurement, presentation, and disclosure requirements. Given the central economic role of the industry, proper and transparent accounting for insurance contracts is of crucial importance.
5. Ind AS 117 in Line with India’s Policy of Embracing International Best Practices
Dr Ajay Bhushan Prasad Pandey, during the meeting, highlighted that Ind AS 117 is substantially converged with IFRS Standard adopted in over 140 countries. This decision is in line with India’s policy of embracing international best practices to enable a level playing field for Indian companies. This standard will enable the Indian insurance industry to present globally comparable financial information, which will promote increased investment in the sector needed for increasing insurance penetration in the country.
6. Outreach and Public Consultation
Prior to the recent meeting, NFRA also held an outreach with members from the Life Insurance Industry in February 2023, as part of its examination of the proposed new standard on insurance contracts. The members from the Life Insurance Industry provided valuable insights to the proposed Ind AS 117 and expressed the need for early notification of the standard. ICAI had also undertaken extensive public consultation by issuing exposure drafts of the proposed Ind AS 117 in 2018, 2021, and 2022.