6 April 2021
Applicability of Accounting Standards to Non-Company Entities

The scheme for applicability of Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) to non-company entities shall come into effect for accounting periods commencing on or after 1 April 2020. For the applicability of Accounting Standards, non-company entities are classified into four categories:
 
Level Description
Level I Level I entities are large size, non-company entities which comprise of:
  1. Entities whose securities are listed or are in the process of listing on any stock exchange, whether in India or outside India
  2. Banks (including co-operative banks), financial institutions or entities carrying on insurance business
  3. All entities engaged in commercial, industrial, or business activities, whose turnover (excluding other income) exceeds INR 2.5 billion in the immediately preceding accounting year.
  4. All entities engaged in commercial, industrial or business activities having borrowings (including public deposits) in excess of INR 500 million at any time during the immediately preceding accounting year
  5. Holding and subsidiary entities of any one of the above
Level II Level II entities are medium size entities, which comprise of:
  1. All entities engaged in commercial, industrial, or business activities, whose turnover (excluding other income) exceeds INR 500 million but does not exceed INR 2.5 billion in the immediately preceding accounting year
  2. All entities engaged in commercial, industrial, or business activities having borrowings (including public deposits) in excess of INR 100 million but not in excess of INR 500 million at any time during the immediately preceding accounting year
  3. Holding and subsidiary entities of any one of the above
Level III Level III entities are small size entities, which comprise of:
  1. All entities engaged in commercial, industrial, or business activities, whose turnover (excluding other income) exceeds INR 10 million but does not exceed INR 500 million in the immediately preceding accounting year
  2. All entities engaged in commercial, industrial, or business activities having borrowings (including public deposits) in excess of INR 20 million but does not exceed INR 100 million at any time during the immediately preceding accounting year
  3. Holding and subsidiary entities of any one of the above
Level IV Level IV entities are micro entities which comprise of:

Non-company entities which are not covered under Level I, Level II, and Level III are considered as Level IV entities.

These are the entities with annual turnover less than INR 100 million and borrowings less than INR 20 million.


The applicability of Accounting Standards to the above categories of non-company entities is summarized as under:
 
Accounting Standard (AS) Level II Entities Level III Entities Level IV Entities
AS 1: Disclosure of Accounting Policies Applicable Applicable Applicable
AS 2: Valuation of Inventories Applicable Applicable Applicable
AS 3: Cash Flow Statements Not Applicable Not Applicable Not Applicable
AS 4: Contingencies and Events Occurring After the Balance Sheet Date Applicable Applicable Applicable
AS 5: Net Profit or Loss for the Period, Prior Period Items, and Changes in Accounting Policies Applicable Applicable Applicable
AS 7: Construction Contracts Applicable Applicable Applicable
AS 9: Revenue Recognition Applicable Applicable Applicable
AS 10: Property, Plant, and Equipment Applicable Applicable with disclosures exemption Applicable with disclosures exemption
AS 11: The Effects of Changes in Foreign Exchange Rates Applicable Applicable with disclosures exemption Applicable with disclosures exemption
AS 12: Accounting for Government Grants Applicable Applicable Applicable
AS 13: Accounting for Investments Applicable Applicable Applicable with disclosures exemption
AS 14: Accounting for Amalgamations Applicable Applicable Not Applicable (Refer note 2(C))
AS 15: Employee Benefits Applicable with exemptions Applicable with exemptions Applicable with exemptions
AS 16: Borrowing Costs Applicable Applicable Applicable
AS 17: Segment Reporting Not Applicable Not Applicable Not Applicable
AS 18: Related Party Disclosures Applicable Not Applicable Not Applicable
AS 19: Leases Applicable with disclosures exemption Applicable with disclosures exemption Applicable with disclosures exemption
AS 20: Earnings Per Share Not Applicable Not Applicable Not Applicable
AS 21: Consolidated Financial Statements Not Applicable Not Applicable Not Applicable
AS 22: Accounting for Taxes on Income Applicable Applicable Applicable only for current tax related provisions
AS 23: Accounting for Investments in Associates in Consolidated Financial Statements Not Applicable Not Applicable Not Applicable
AS 24: Discontinuing Operations Applicable Not Applicable Not Applicable
AS 25: Interim Financial Reporting Not Applicable Not Applicable Not Applicable
AS 26: Intangible Assets Applicable Applicable Applicable with disclosures exemption
AS 27: Financial Reporting of Interests in Joint Ventures Not Applicable Not Applicable Not Applicable
AS 28: Impairment of Assets Applicable with disclosures exemption Applicable with disclosures exemption Not Applicable
AS 29: Provisions, Contingent Liabilities, and Contingent Assets Applicable with disclosures exemption Applicable with disclosures exemption Applicable with disclosures exemption

The link to the original notification can be accessed here.

Revised definition of MSME can be accessed here.
Our Comments
The main feature of this announcement by the ICAI are the exemptions granted to the newly crafted micro enterprises category covered under Level IV. Cumbersome reporting for accounting standards related to related parties, segment disclosures, cash flow statements, and asset impairment will not be applicable to Level IV entities. The notification issued by the ICAI is duly adherent to the revised definition of MSME which was changed with effect from 1 July 2020 by the Ministry of Micro, Small, and Medium Enterprises. These exemptions will however not apply to entities that are required to adhere to Ind AS as per regulatory requirements.
Sudit K. Parekh & Co. LLP
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