1. IRDA – ICAI Joint Roundtable Meeting on Compliance Aspects of Accounting, Auditing and Regulatory Requirements in Insurance Sector Sustaining Reliable Financial Reporting Framework

2. IRDA – ICAI Joint Roundtable Meeting on Compliance Aspects of Accounting, Auditing and Regulatory Requirements in Insurance Sector Hyderabad.6 th November 2007

3. Accounting Standards 15 (Revised) § Revised AS15 requires an approved provident fund to be treated as a Defined Benefit Plan however there is no clarity on getting the same actuarially valued as the actuaries have shown their inability to value the same.

4. Accounting Standards 15 (Revised) Treatment of Transition provision in AS 15 - how should we treat the impact of revised AS 15 pertaining to previous years (transition proviso of AS 15). There is as such no clarification on the treatment - whether the same has to be adjusted below the line (through FFA) in technical account or directly take into Balance sheet. The question is to how it will be charged to policyholders as if the Salary cost is being related to Policyholders then this impact should also be taken into policyholders account (technical Account). Treatment of Transition provision in AS 15 - how should we treat the impact of revised AS 15 pertaining to previous years (transition proviso of AS 15). There is as such no clarification on the treatment - whether the same has to be adjusted below the line (through FFA) in technical account or directly take into Balance sheet. The question is to how it will be charged to policyholders as if the Salary cost is being related to Policyholders then this impact should also be taken into policyholders account (technical Account).

5. Accounting Standard 22 Should tax be an appropriation or a charge in Policyholder account? Should tax be an appropriation or a charge in Policyholder account?

6. Accounting Standard 17 Need for a guidance note on allocation of expenses and assets and liabilities for preparation of segmental revenues and segmental balance sheets. Presently each Insurance company is using different methods of allocation. The guidance note will help in following uniform methods of allocation and thus enhance the effectiveness of comparison of financial statements of Insurance companies Need for a guidance note on allocation of expenses and assets and liabilities for preparation of segmental revenues and segmental balance sheets. Presently each Insurance company is using different methods of allocation. The guidance note will help in following uniform methods of allocation and thus enhance the effectiveness of comparison of financial statements of Insurance companies

7. Accounting Standard 19 Expert advisory opinion on Accounting for scheduled rent increase in case of operating lease - The opinion refers to operating leases which are renewable after specified time intervals at the option of the lessee. The lease agreement provides for an escalation clause in lease payments at each such renewal. Expert advisory opinion on Accounting for scheduled rent increase in case of operating lease - The opinion refers to operating leases which are renewable after specified time intervals at the option of the lessee. The lease agreement provides for an escalation clause in lease payments at each such renewal.

8. Accounting Standard 19 The opinion expressed by the esteemed committee requires that in respect of such operating leases, lease payments must be recognized on a straight line basis from inception of the lease. This requires the recognition of future income / expense in the current period, thus necessitating the creation of liability / receivables in the initial years as lease payments are lower than expense / income. The opinion expressed by the esteemed committee requires that in respect of such operating leases, lease payments must be recognized on a straight line basis from inception of the lease. This requires the recognition of future income / expense in the current period, thus necessitating the creation of liability / receivables in the initial years as lease payments are lower than expense / income.

9. Accounting Standard 19 The increase in costs refers to changes on account of inflation and does not represent structured defined payments over a period of time. The increased costs refer to future contingent liabilities; the recognition of the same in current periods is inconsistent with the matching principles of recognizing income and expenses. The increase in costs refers to changes on account of inflation and does not represent structured defined payments over a period of time. The increased costs refer to future contingent liabilities; the recognition of the same in current periods is inconsistent with the matching principles of recognizing income and expenses. It is felt that the above accounting treatment has significant taxation impacts on account of TDS and Service Tax. Further the treatment doesnt reflect a true and fair presentation of costs.This position is requested to be revisited. It is felt that the above accounting treatment has significant taxation impacts on account of TDS and Service Tax. Further the treatment doesnt reflect a true and fair presentation of costs.This position is requested to be revisited.

10. Disclosure of non financial data Non financial data provides the users of financial statement with additional information and increases the value of financial information. Thus should be mandated, eg: Non financial data provides the users of financial statement with additional information and increases the value of financial information. Thus should be mandated, eg: Burn rate Burn rate Value of New Business Value of New Business Persistency Persistency No. of branches No. of branches No. of agents No. of agents

11. Roadmap to IFRS A need for roadmap to IFRS is required specific with regards to · Amortisation of acquisition & similar costs (Considering that Insurance contracts are generally long term contracts, however costs incidental to acquiring an insurance policy is required to be charged off in the year the policy is acquired. This causes a huge mismatch between premium recognition vis-à-vis the acquisition costs as premiums are booked year on year as & when they accrue over the life of the policy but the acquisition expenses on the other hand are charged A need for roadmap to IFRS is required specific with regards to · Amortisation of acquisition & similar costs (Considering that Insurance contracts are generally long term contracts, however costs incidental to acquiring an insurance policy is required to be charged off in the year the policy is acquired. This causes a huge mismatch between premium recognition vis-à-vis the acquisition costs as premiums are booked year on year as & when they accrue over the life of the policy but the acquisition expenses on the other hand are charged Investment Valuations off in the first year itself.) Investment Valuations off in the first year itself.) Premium Recognition in light of IRDA Rules and Regulations Premium Recognition in light of IRDA Rules and Regulations

12. Enhancing the credibility of the External Financial Information: Auditing Issues Joint Audit: Joint Audit: –Centralised accounting models –Varying materiality definitions –Overlap of coverage –Difficulties in tax audits Limitation of 2 audits Limitation of 2 audits –Not conducive to development of specialists

13. Auditing Issues Actuarial Numbers Actuarial Numbers –Actuarial liabilities certified by appointed actuaries –Audit coverage restricted to confirmation of actuarial assumptions –Not covered by an independent audit

14. Auditing Issues Guidance Note on Insurance Audit:Guidance Note on Insurance Audit: Need for update To include a more detailed guidance on evaluation of actuarial estimates Preparing auditors to meet the challenges placed by new accounting pronouncements AS-30, AS-31, AS-15 IFRS

15. Auditing Issues Clarifications required in respect of regulations Clarifications required in respect of regulations – –Certification of management report – –Reporting on contraventions of the provisions of the Insurance Act, 1938 – –Whether term deposits with banks are to be reckoned for the purpose of computing limits for the industry sector to which the investee belongs

16. Auditing Issues Cash flow statements Cash flow statements –Could an option be given to insurance companies to present cash flow statements using the indirect method Segment reporting Segment reporting –Segments defined under the regulations are not necessarily the manner in which insurance companies organise their operations

17. Auditing Issues Interim financial reporting: Interim financial reporting: –Half Yearly / Quarterly financial reports which could be subjected to a limited review could assist insurance companies in meeting their listing requirements. Audit of internal control systems Audit of internal control systems –Currently restricted to a statement in the management report –Assertion on design and operation of internal controls –Separate certification by auditors