Insurance companies in Bangladesh should begin preparing their financial statements in line with international standards with a view to ensuring transparency, said speakers yesterday.
The suggestion came at a seminar -- IFRS 17-Insurance Contracts: Overview, Implementation Challenges and Way Forward -- organised by the Institute of Chartered Accountants of Bangladesh (ICAB) at the Pan Pacific Sonargaon Hotel in Dhaka.
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The Financial Reporting Act, 2015 already requires that financial statements of insurance companies are prepared in accordance with the International Financial Reporting Standards (IFRS).
Besides, the International Accounting Standards Board (IASB) has issued the "IFRS 17 Insurance Contracts", which is going to be effective from January 1 next year.
IFRS 17 combines the current measurement of the future cash flows with the recognition of profit over the period that services are provided under the contract and presents insurance service results separately from insurance finance income or expenses, according to the website of IFRS.
It also requires an entity to make an accounting policy choice of whether to recognise all insurance finance income or expenses in profit or loss or to recognise some of that income or expenses in other comprehensive income.
In Bangladesh, financial statements are prepared using the Insurance Act 1938 and the Insurance Rules 1958, said Wasequl Huq Reagan, a partner of Mahfel Huq & Co, while presenting the keynote paper at the seminar.
The IFRS, although required by the Financial Reporting Act 2015, is not followed consistently as formats are taken from the Insurance Act 1938, he said.
"But the Act is almost 82 years old and does not comply with the IFRS."
Shahadat Hossain, president of the ICAB, said IFRS 17 represents a complete overhaul of the accounting for insurance contracts and would increase the transparency of insurers' financial positions and performance.
"The standard will ensure the entities providing relevant information that faithfully represents the recognition, measurement, presentation and disclosure principles for insurance contracts within its scope."
Hossain said insurance companies are large investors in the financial markets, so the growing linkage between insurers and banks is considered a safeguard for the financial stability of the country.
"Transparency delivered by accounting standards in this sector is a crucial ingredient for sustainable growth."
Mohammad Jainul Bari, chairman of the Insurance Development and Regulatory Authority (Idra), said the Idra would pay more attention to ensuring compliance with IFRS 17.
"As soon as the standard comes into effect, insurance companies will need to prepare their financial statements according to this standard."
"The standard will increase transparency and accountability in the country's insurance sector and enable companies to gain public trust as well."
Bari said the Idra would prepare an action plan to implement the standard in consultation with various stakeholders such as the ICAB, the Financial Reporting Council, and insurers.
The Idra is working to formulate regulations to implement the Insurance Act 2010, he said.
Bari believes that IFRS 17 will help bring about fundamental changes to the insurance sector.
"There are challenges in its implementation. So, all stakeholders should work together to overcome the challenges."