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IND AS 104: Insurance Contracts

india as

IND AS 104 explains financial reporting by an insurer. This standard needs limited improvements to accounting by an insurer and disclosure that describes the amount emerging from contracts and helps users understand the nuances of the contracts. This standard applies to the entire insurance contract that an insurer issues, including the reinsurance contract that it detains and financial instrument it issues with a discretionary participation feature.

The objective of Ind AS 104 states the financial reporting for the insurance contracts by any entity that issues such contracts.

Application of this Indian Accounting Standard:

  1. Insurance contracts containing reinsurance contracts that it issues and reinsurance contracts that it holds.
  2. Financial instruments for insurance contracts that it issues with a discretionary participation feature.

This Indian accounting standard does not provoke other accounting aspects by insurers for the insurance contract, such as accounting for financial assets held by insurers and financial liabilities provided by insurers for insurance contracts.

Embedded derivatives
An insurer does not need to account for an embedded derivative separately at fair value for the insurance contract if the embedded result meets the term of an insurance contract. 

Unbundling of deposit component
Requires an insurer to unbundle, i.e., to account separately for deposit parts of some insurance contracts, to avoid excluding assets and liabilities from its balance sheet for insurance contracts. 

Key Terms under contract

  • Insurance contract
  • Deposit component
  • Discretionary participation feature

Recognition and measurement
Following are the recognition and measurements under insurance contracts:

  • Liability adequacy test
    An insurer shall evaluate whether its recognized insurance liabilities at the end of each reporting are sufficient, using current estimates of future cash flows under its insurance contracts.
  • Changes in accounting policies
    An insurer should change its accounting policies for insurance contracts if the change in the financial statement of an insurance contract is more relevant for the economic decision-making needs of the users and no more reliable, or less reliable, and no less applicable to those needs.
  • Premeasuring insurance liabilities
    An insurer has granted to change its accounting policies for its insurance contract to remeasures designated insurance liabilities to reflect the current market interest rates and recognizes changes in those liabilities in profit or loss (P/L).
  • Prudence
    An insurer does not need to change the accounting policies for insurance contracts, including reinsurance contracts to eliminate excessive prudence.
  • Future investment margins
    There is a revocable assumption that the insurer’s financial statement will become less relevant and reliable if it introduces an accounting policy that devises future investment margins to measure its insurance contracts.

An insurer should disclose information that explains and identify the amounts in its financial statement from insurance contracts. An insurer shall reveal information that enables the users to evaluate the nature and extent of risks arising from the insurance contract.

At AJSH, we assist our clients in bookkeeping, payroll, auditing, taxation, secretarial compliances, and preparation of financial statements ensuring compliance with applicable accounting standards. If you have any questions or wish to know more about compliances with Ind AS 104 Insurance contracts, kindly contact us.


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