The Ministry of Corporate Affairs (MCA) notified the Ind AS road map for corporates on 16 February 2015. The Insurance Regulatory and Development Authority of India (IRDA), through its order on 17 November 2015 stated that the insurance sector in India would be converging with International Financial Reporting Standards (IFRS) and subsequently on 7 December 2015, IRDA had also issued a discussion paper on Ind AS implementation in the insurance sector with key recommendations.
The Ministry of Corporate Affairs (MCA) notified the Ind AS road map for corporates on 16 February 2015. The Insurance Regulatory and Development Authority of India (IRDA), through its order on 17 November 2015 stated that the insurance sector in India would be converging with International Financial Reporting Standards (IFRS) and subsequently on 7 December 2015, IRDA had also issued a discussion paper on Ind AS implementation in the insurance sector with key recommendations. Further, MCA also issued a press release on 18 January 2016 outlining the road map for implementation of Ind AS in the financial services sector, including insurance companies.
The IRDA circular issued on 1 March 2016 now provides certainty on the mandate for implementation of Ind AS for all insurers.
Overview of the recent circular
This circular requires all insurers to comply with the Ind AS for financial statements for accounting periods beginning on or after 1 April 2018, with comparatives for the periods ending 31 March 2018. Early adoption is not permitted. Ind AS will be applicable to both separate and consolidated financial statements.
The IRDA has advised insurers to set up a steering committee headed by an official of the rank of an Executive Director (or equivalent) comprising members from cross-functional areas of the insurer to immediately initiate the implementation process. The audit committee of the board shall oversee the progress of the Ind AS implementation process and report to the board at quarterly intervals. The circular also identifies critical issues, which need to be considered in the Ind AS implementation plan, as follows:
Insurers also need to assess the impact of Ind AS implementation on their financialposition including the adequacy of capital, taking into account the solvency regulations and place quarterly progress reports to their boards. Insurers also need to be prepared to submit proforma Ind AS financial statements to IRDA from the quarter ending 31 December 2016 onwards as per the timelines prescribed in the IRDA circular dated 28 January 2010.
The IRDA has stated that the boards of the insurers shall have the ultimate responsibility in determining the Ind AS direction and strategy and in overseeing the development and execution of the implementation plan. Beginning with the financial year 2015-16, until implementation, insurers are required to disclose in the annual report, the strategy for Ind AS implementation, including the progress made in this regard.
In order to facilitate the implementation process, IRDA shall hold periodic meetings with insurers from July 2016 onwards. The IRDA has stated that it would issue further instructions, guidance or clarifications on relevant aspects as and when required.
The adoption of Ind AS by insurers is expected to have a pervasive impact on several aspects of their business in addition to the financial reporting process. As identified in IRDA circular, there are several implications related to systems, business processes and regulatory aspects that insurers need to evaluate and consider in detail. Given the timelines for Ind AS implementation, insurers should commence preparing for this change well in advance.
To access the text of IRDA circular, please click here
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