Mumbai: Insurance Regulatory and Development Authority of India (IRDA) on Thursday deferred the effective date for implementation of Ind-AS accounting model in the insurance sector to April 2020 from April 2018.
The authority has approved the regulatory override whereby the implementation of Ind-AS in the insurance sector has been deferred by two years to Fiscal 2020-21, an IRDA circular dated 28 June said.
An IRDA board meeting on 31 May noted peculiarities of the domestic insurance sector, specifically the fact that the country does not have a standard equivalent to international accounting standards (IAS) 39.
The IRDA concluded that implementation of Ind AS in the present form is expected to lead to a position where assets would be valued on fair value/market value basis and liabilities would continue to be valued as per the existing formula based approach. This would lead to mismatch in the asset and liability valuation and would also cause volatility in the financial statements of the insurance companies.
Additionally, IRDA has observed that the compliance costs will have to be incurred twice-once immediately on implementation of Ind-AS and second when IFRS 17 would be implemented in the country. After considering the given facts, IRDA through its 28 June circular has deferred the implementation of Ind-AS to April 2020.
However, insurers would still be required to submit the proforma Ind AS financial statements to IRDA on a quarterly basis, which was started from December 2016. Insurers were required to implement Ind-AS 104, Insurance Contracts from April 2018. Since IFRS 4 has been replaced by IFRS 17, there was an urgent need to clarify which standard the insurance sector would need to apply while transitioning to Ind-AS, KPMG said in a statement.
The IRDA has, with the deferment of Ind AS road map, paid heed to the requests of a number of insurance companies and tried to avoid two major changes in accounting framework for the insurance sector, it added.
Regarding the applicability date, KPMG said, it is important to note that as per the IRDA, Ind-AS application to insurers would be from April 1, 2020 with the transition date being April 2019. Therefore, domestic insurers would be expected to apply Ind AS equivalent standard of IFRS 17 earlier than global applicability date of January 2021.
The regulator had on 17 November, 2015 stated that the insurers would converge with IFRS after the issuance of the revised standard on insurance contracts by the International Accounting Standards Board. Subsequently, corporate affairs ministry had on 30 March 2016 notified the road map for implementation of Ind AS for banks, insurers and NBFCs from April 2018.
IRDA also constituted an implementation group on 17 November 2015 to facilitate Ind-AS convergence for insurers.
On 18 May 2017, the IASB issued the comprehensive international standard on insurance or IFRS 17, insurance contracts. IFRS 17 replaces IFRS 4, insurance contracts 1 which was in the nature of an interim standard pending the completion of project on insurance contracts by IASB.
The release of IFRS 17 standard led to IRDA to review its position in the matter of implementation of Ind-AS in the insurance sector.