Background
 
The Ministry of Corporate Affairs (MCA) through its notification dated 16 February 2015 laid out a road map for the prescribed class of companies other than insurance companies, banking companies and Non-Banking Finance Companies (NBFCs) for implementation of Indian Accounting Standards (Ind AS) converged with International Financial Reporting Standards (IFRS).
 
Recently on 29 September 2015, the Reserve Bank of India (RBI) through its Fourth Bi-monthly Monetary Policy Statement, 2015-16 also informed its stakeholders that it has recommended to the MCA a road map for the implementation of Ind AS for banks and NBFCs from 2018-19 onwards.
The RBI constituted a working group(under the chairmanship of Shri Sudarshan Sen) to examine issues relating to Ind AS application by banks and NBFCs and the report of this working group has been opened up for comments by stakeholders till 30 November 2015.
 
New developments
 
The Insurance Regulatory and Development Authority of India (IRDA) through its order dated 17 November 2015 stated that the insurance sector in India would be converging with IFRS after the issuance of the revised standard on insurance contracts i.e. IFRS 4, Insurance Contracts by the International Accounting Standards Board (IASB). Currently, IFRS 4 is being deliberated by the IASB and a final standard is expected to be issued in 2016.
 
In order to prepare the Indian insurance sector towards convergence with Ind AS, the IRDA has constituted an implementation group (under the Chairmanship of Smt. V.R Iyer) to lay down the road map for the convergence.
 
Next steps
 
The implementation group will examine the implications of implementing Ind AS, address the issues and facilitate formulation of operational guidelines to converge with Ind AS in the Indian insurance sector. The terms of reference for the implementation group are as under:
 

• Review the applicability of Ind AS notified by MCA
• Study the impact of Ind AS on the insurance sector
• Identify issues involved in implementation of Ind AS
• Provide a road map in addressing the IT system requirements on an ongoing basis
• Identify IRDA regulations/stipulations which need to be reviewed in the light of Ind AS implementation
• Identify legislative amendments, if any, which may be required to converge towards Ind AS
• Prepare formats for the financial statements of insurers under Ind AS
• Draft application guides/educational material to facilitate smooth convergence
• Recommend measures for capacity building among various stakeholders for implementation
• Suggest measures to deal with any other tasks related to implementation of Ind AS.

The implementation group would form sub-groups to focus on issues specific to life and ‘other than life’ insurance business. The sub-groups would be focussing on the impact and changes required on the following aspects:

• Financial statements, disclosures and audit report 
• Investments
• Solvency margin.
  

The implementation group would be submitting its report in three months.
 
Our comments
 
The IRDA has taken a step in the right direction by forming a focus group to examine the implications of implementing Ind AS in the Indian insurance sector.
 
The transition to Ind AS has an organisation wide impact, and not just accounting. The formulation of operational guidelines could help companies in the insurance sector to smoothly transition to Ind AS. While internationally, IFRS 4 is still being deliberated upon, simultaneously in India, IRDA/MCA and the Institute of Chartered Accountants of India would closely monitor the development of IFRS 4 and incorporate key changes in the implementation road map for Ind AS.
 
With greater clarity emerging on the path to Ind AS convergence for the insurance sector, companies in this sector should start assessing the impact and effectively use the time available for implementation.
 
To access the text of the IRDA announcement, please click here.