On June 20, 2013, the International Accounting Standards Board issued a revised exposure draft — Insurance Contracts. This is a major milestone in IASB’s efforts to eliminate diversity in insurance contract accounting. According to the revised ED, building blocks model will be used to measure insurance contract liability. The basic components of the model comprise the fulfilment cash flows and the contractual service margin. The fulfilment cash flows are determined by adjusting the estimates of future cash flows for the time value of money using discount rates that reflect the characteristics of the cash flows and applying a risk adjustment. The contractual service margin represents the expected contract profit in an insurance contract. The revised ED also proposes the “earned premium approach” to recognise and present premium revenue in profit or loss. This is a new concept for many issuers of long-term life contracts. The IASB has asked for comments on the measurement model before October 25, 2013.

More disclosures on bank capital

During the financial crisis, it was observed that the disclosures of capital positions by banks were not comprehensive. Besides, there was no consistency in the disclosures. Therefore, market participants and regulators/ supervisors struggled to assess the capital positions, especially on a cross-jurisdictional basis. To improve consistency and ease the use of disclosures on capital composition and mitigate the risk of inconsistent reporting, banks across Basel member jurisdictions are required to publish their capital positions according to common templates. To implement these requirements in India, the Reserve Bank of India recently issued new guidelines that require banks to use the common template after March 31, 2017. In the transition period, they will use a modified form of the template. All disclosures must either be included in the bank’s published financial results or, at a minimum, on its Web site. If a bank cannot make the disclosures in the published financial results, it must provide a link to the Pillar 3 disclosures on its Web site.

Bigger onus on independent directors

After the breakout of several large scams in the country and its possible connection to the subsequent increase in resignation of independent directors, there is heightened focus on their role and responsibilities as custodians of stakeholder interests. Independent directors can bring objectivity to board decisions by playing a supervisory role. While they need not take part in the company’s day-to-day affairs or decision making, they should ask the right questions at the right time on board decisions. In the Companies Bill passed recently by the Rajya Sabha, the onus is on independent directors to report any fraud or unethical act in the company. By raising red flags at the right time, they can to a great extent avert unwanted situations and consequences.

— EY

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