The Insurance Regulatory and Development Authority (IRDA)
bill passed by the Parliament in the late 1990s has
transformed the Indian insurance sector for eternity.
Apart from opening new avenues, it initiated steps for protecting the
interests of insurance policyholders thereby ensuring constant growth of
the industry. It proved as a boon for an industry which was growing
at 15-20% yearly driven mostly by rising population, income
integration, domestic competition, knowledge boom, legal system
advancements, etc. Thus, sensing the huge opportunity of growth, many
foreign players have shown keen interest in the Indian insurance
market. However, these developments bring forth a number of
challenges including increased competitive environment, robust
regulatory framework, and a need for upgrading insurance accounting
system through various financial regulatory frameworks like
International Financial Reporting Standards (IFRS), Basel II norms and
Solvency II, etc.
The introduction of IFRS is regarded as timely for the
insurance companies which are trying to go public in order to raise funds.
To implement IFRS, insurance entities must get ready for speedy,
transparent and quality reporting. This would satisfy the users of
financial statements such as investors, shareholders and others who are
in search of more comprehensive, comparative and relevant
accounting information. IFRS is striving towards becoming a universal
accounting norm which is easy to interpret and capable of protecting the interest of the stakeholders. To
fall in line with the trend worldwide, Institute of Chartered Accountant of India (ICAI), IRDA and
National Committee of Accounting Standards (NCAS) have urged insurance companies to prepare financial
statements in harmony with IFRS.
The shift towards IFRS is complex and time-consuming. This is more so in case of insurance business
which is associated with risk and uncertainty. For such businesses, a preliminary study is a must before IFRS
conversion can be implemented. For carrying out such studies in India, ICAI and IRDA have appointed a team of
experts in the subject of insurance, accounting and IFRS. The experts suggest that major conversion takes 18
months or more whereas the less complex conversion would take 6-12 months. The conversion program tries to
build a financial reporting process for adapting IFRS. International Accounting Standards Board (IASB)
along with ICAI can discuss the bottlenecks for adoption and the necessary amendments in
insurance laws to smoothen the implementation program. |
