The Centre is developing new accounting standards for the banking and insurance sectors. This initiative aims to enhance transparency and align Indian financial practices with global standards.
The Ministry of Corporate Affairs (MCA) is collaborating with ICAI to promote the aggregation of accounting and auditing firms, aiming to elevate them to global stature. The ministry has already asked major companies to comply with International Financial Reporting Standards (IFRS), with ongoing efforts to introduce similar standards for the insurance sector. Research on this matter has been completed, and new standards are expected to be introduced soon.
Banking accounting standards
Discussions are underway with the Reserve Bank of India to establish specific accounting standards for the banking industry, which are anticipated to be released in the near future. The ministry is also considering implementing accounting standards for Limited Liability Partnerships (LLPs), having received recommendations from ICAI and the National Financial Reporting Authority (NFRA).
In addition to these efforts, the ministry plans to review existing regulations under company and LLP laws to streamline the voluntary closure process of companies, which has already been significantly reduced from two years to three months.
The MCA and ICAI are jointly working to create an environment conducive to the emergence of Indian accounting and auditing firms as global leaders. A strategic plan for the aggregation of Chartered Accountant firms is in progress, aiming to prepare these firms to meet international standards.
New insurance accounting standard
This new standard is expected to align Indian norms with international practices, thereby providing global investors with a clearer understanding of the risk exposure of domestic insurers. This move is anticipated to attract foreign direct investment (FDI) and increase insurance penetration in India.
The new standard, modelled on IFRS 17, will replace the current Ind AS 104 and is expected to bring greater transparency through enhanced disclosure requirements. This will enable better comparison of financials between domestic insurers and their global counterparts.
The NFRA has conducted extensive consultations with the Insurance Regulatory and Development Authority of India (IRDAI) and other stakeholders, including companies and ICAI, to formulate these recommendations. The insurance penetration in India stood at 4.2% in FY22, compared to the global average of 7% in 2021, though the domestic market is growing at a faster pace.
