MCA notifies new accounting standard Ind AS 117 on ‘insurance contracts’

In a game-changing development, the Corporate Affairs Ministry (MCA) has notified the much-awaited new accounting standard on ‘Insurance Contracts’ (Ind AS 117), setting the stage for a major overhaul of accounting practices in the insurance industry. 

The new Accounting Standard (Ind AS 117), which would be applicable from April 1, 2024, would substantially converge with the IFRS 17, which is now being adopted by over 140 countries since January 1, 2023. The latest MCA move will bring Indian accounting standards closer to global standards, experts said. 

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MCA has notified Ind AS 117 based on the recommendations of the National Financial Reporting Authority (NFRA), which is the country’s sole independent audit regulator. 

The latest Ind AS 117 has replaced the currently notified Ind AS 104, insurance contracts. 

Roadmap for implementation

Commenting on the latest MCA move, Avinash Chander, former Technical Director, Institute of Chartered Accountants of India (ICAI) said, “While the Government has notified Ind AS 117, Insurance Contracts, effective April 1, 2024, still it will not be applied by insurance companies in India because the Indian Accounting Standards are not applicable to such companies pending issuance of road map by IRDAI. Now that this standard has been notified, all eyes are on IRDAI, to soon issue a roadmap for implementation of Indian Accounting Standards for such companies.”

Amarjit Chopra, former President of ICAI said “With Ind AS 117 now notified by MCA, it is desirable that IRDAI should mandate the implementation of Ind AS in the various insurance companies”.

He highlighted that neither IRDAI nor RBI has so far mandated Ind AS adoption for their regulated entities under them. “At the most, the notified Ind AS 117 will have some impact as regards accounting of financial guarantees which may be in nature of insurance contracts”, Chopra noted.

ICAI had also undertaken extensive public consultation by issuing exposure drafts of the proposed Ind AS 117 in 2018, 2021 and 2022.

IFRS 17, 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 as a first truly international IFRS standard for insurance contracts to help investors and other users to better understand insurers’ risk exposure, profitability and financial position. Globally, it has become effective from January 1,  2023.

IFRS 17 is specifically designed to capture the unique features of the insurance and investment contracts of the insurance entities. It is highly insurance products specific and would entail a paradigm shift in the measurement, presentation and disclosure requirements. Insurance industry fulfils a significant role in the global economy. 

International Accounting Standards Board (IASB’s) factsheet of 2017 says with $13 trillion in assets, insurers account for 12 per cent of the total assets of listed companies that use IFRS standards.Given the central economic role of the industry, proper and transparent accounting for insurance contracts is of crucial importance, said experts.