The Ministry of Corporate Affairs Notification dated 28th September 2024 introduces amendments to the Companies (Indian Accounting Standards) Rules, 2015. This includes the introduction of the Companies (Indian Accounting Standards) Third Amendment Rules, 2024, which comes into effect upon publication in the Official Gazette.
Key Amendments:
- Amendment to Rule 5: A proviso is added allowing insurers to continue preparing financial statements as per Ind AS 104 for consolidated financial statements of parent companies, investors, or venturers, until Ind AS 117 is notified by the Insurance Regulatory and Development Authority (IRDAI).
- Schedule Introduction:
The amendment introduces a schedule that outlines Indian Accounting Standard (Ind AS) 104 – Insurance Contracts, which governs financial reporting for insurance contracts. Its key focus is improving the accounting practices of insurers and ensuring transparency through comprehensive disclosures to better understand the financial implications of insurance contracts.
Core Elements of Ind AS 104:
- Objective: Ind AS 104 provides guidelines on the recognition, measurement, and disclosure of insurance contracts, requiring insurers to report on the timing, amount, and uncertainty of future cash flows.
- Scope: The Standard applies to insurance and reinsurance contracts, as well as financial instruments with discretionary participation features. It excludes financial assets, employer benefits, and product warranties.
- Embedded Derivatives: Some embedded derivatives need to be separated and measured at fair value unless tied to non-specific financial or non-financial variables.
- Unbundling: Insurance contracts containing both insurance and deposit components must be unbundled if the deposit component can be separately measured.
- Liability Adequacy Test: Insurers are required to assess the adequacy of their insurance liabilities based on estimated future cash flows and recognize any deficiencies in profit or loss.
- Impairment of Reinsurance Assets: If reinsurance assets are impaired, an impairment loss must be recognized.
- Changes in Accounting Policies: Policy changes are allowed only if they enhance relevance and reliability.
- Disclosure: Insurers must disclose comprehensive information about insurance contracts, including recognized assets, liabilities, income, and risks.
The amendment also includes a comparison between Ind AS 104 and IFRS 4, noting key differences in terminology and the exclusion of certain transitional provisions from the Indian standards.
