Revised Criteria for classification of Non-company entities for applicability of Accounting Standards
The Council, at its 433rd meeting, held on August 13-15, 2024, considered the revised criteria for classification of Non-company entities for applicability of Accounting Standards issued by The Institute of Chartered Accountants of India (ICAI) to Non-company entities (Enterprises) and recommended to revise the same. The revised scheme for applicability of Accounting Standards to Non-company entities shall come into effect in respect of accounting periods commencing on or after April 1, 2024, which is as under:
- For the purpose of applicability of Accounting Standards, Non-company entities are classified into two categories, viz., Micro, Small and Medium Sized Entities (MSMEs) and Large entities.
- Micro, Small and Medium Sized Entity (MSME) means, a non-company entity:
(i) whose equity or debt securities are not listed or are not in the process of listing on any stock
exchange, whether in India or outside India;
(ii) which is not a bank, financial institution or an insurance company;
(iii) whose turnover (excluding other income) does not exceed two hundred and fifty crore rupees in the immediately preceding accounting year;
(iv) which does not have borrowings in excess of fifty crore rupees at any time during the immediately preceding accounting year; and
(v) which is not a holding or subsidiary of an entity which is not a micro, small and medium-sized entity.
Explanation.- For the purposes of this clause, a non-company entity shall qualify as a Micro, Small and Medium Sized entity, if the conditions mentioned therein are satisfied as at the end of the
relevant accounting period.
Large entity is a non-company entity that is not an MSME.
The terms ‘Small and Medium Enterprise’ and ‘SME’ used in Accounting Standards shall be read as ‘Micro, Small and Medium size entity’ and ‘MSME’, respectively. Further, the terms Level II, Level III and Level IV entities used in Accounting Standards shall be read as ‘Micro, Small and Medium Sized Entity’ and Level I entity shall be read as a ‘Large’ entity. - Large entities are required to comply in full with all the Accounting Standards.
- Certain exemptions/relaxations have been provided to Micro, Small and Medium sized Entity (MSMEs).
Applicability of Accounting Standards and exemptions/relaxations to such entities are given in Annexure 1. - This Announcement supersedes the earlier Announcement of the ICAI on ‘Criteria for classification of Non-company entities for applicability of Accounting Standards issued in March 2021’.1
- This Announcement is not relevant for Non-company entities which may be required to follow Indian Accounting Standards (Ind AS) or Accounting Standards (AS) as per relevant regulatory requirements applicable to such entities.
- The changes arising from this Announcement will be incorporated in the Accounting Standards while publishing the updated Compendium of Accounting Standards.
Additional requirements
(1) An MSME which avails the exemptions or relaxations given to it shall disclose (by way of a note to its financial statements) the fact that it is an MSME and has complied with the Accounting Standards in so far as they are applicable to an MSME.
(2) Where an MSME had qualified for any exemption or relaxation previously but no longer qualifies for the relevant exemption or relaxation in the current accounting period, the relevant standards or requirements become applicable from the current period and the figures for the corresponding period of the previous accounting period need not be revised merely by reason of its having ceased to be an MSME. The fact that it was an MSME in the previous period and it had availed of the exemptions or relaxations available to it shall be disclosed in the notes to the financial statements. The fact that previous period figures have not been revised shall also be disclosed in the notes to the financial statements.
(3) An entity which was previously not an MSME and subsequently becomes an MSME, shall not be qualified for exemption/relaxation in respect of Accounting Standards available to an MSME until the entity remains an MSME for two consecutive years.
(4) If an MSME opts not to avail of the exemptions or relaxations available to an MSME in respect of any but not all of the Accounting Standards, it shall disclose the Standard(s) in respect of which it has availed the exemption or relaxation.
(5) If an MSME opts not to avail any one or more of the exemptions or relaxations available to it, it shall
comply with the relevant requirements of the Accounting Standard.
(6) An MSME may opt for availing certain exemptions or relaxations from compliance with the requirements prescribed in an Accounting Standard:
Provided that such a partial exemption or relaxation and disclosure shall not be permitted to mislead
users of financial statements.
1 The said announcement was hosted on ICAI website on March 31, 2021 and published in ‘The Chartered Accountant’, May 2021 and it superseded the earlier announcement of the ICAI on ‘Harmonisation of various differences between the Accounting Standards issued by the ICAI and the Accounting Standards notified by the Central Government’ issued in February 2008, to the extent it prescribed the criteria for classification of Non-company entities (Non-corporate entities) and applicability of Accounting Standards to non-company entities, and the Announcement ‘Revision in the criteria for classifying Level II non-corporate entities’ issued in January 2013.
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