MCA notifies Indian Accounting Standard (Ind AS) 117 Insurance Contracts
MCA has notified Indian Accounting Standard (Ind AS) 117 Insurance Contracts. The Central Government, in consultation with the National Financial Reporting Authority, (NFRA) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2024 which have amended the Companies (Indian Accounting Standards) Rules, 2015
Ind AS 117 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the Standard. The objective of Ind AS 117 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.
An entity shall consider its substantive rights and obligations, whether they arise from a contract, law or regulation, when applying Ind AS 117. A contract is an agreement between two or more parties that creates enforceable rights and obligations. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity’s customary business practices. Contractual terms include all terms in a contract, explicit or implied, but an entity shall disregard terms that have no commercial substance (ie no discernible effect on the economics of the contract). Implied terms in a contract include those imposed by law or regulation. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities. In addition, they may vary within an entity (for example, they may depend on the class of customer or the nature of the promised goods or services).
Under Ind AS 117, the objective of the disclosure requirements is for an entity to disclose information in the notes that, together with the information provided in the balance sheet, statement(s) of profit and loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that contracts within the scope of Ind AS 117 have on the entity’s financial position, financial performance and cash flows.
An entity shall apply Ind AS 117 for annual reporting periods beginning on or after 1 April 2024. Early adoption is permitted. If an entity applies Ind AS 117 earlier, it shall disclose that fact. However, an Insurance Company is permitted to apply Ind AS 117 early only for consolidation purposes by its parent company.
Ind AS 117 supersedes Ind AS 104 Insurance Contracts.
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