Frequently Asked Questions (FAQs) on Guidance Note on Financial
Statements of Non-Corporate Entities
(Issued jointly by the Accounting Standards Board and Auditing and Assurance Standards
Board of the Institute of Chartered Accountants of India)
Question 1: What is the purpose of the Guidance Note on Financial Statements of NonCorporate Entities issued by ICAI (“Guidance Note”)?
Response: The Guidance Note issued by ICAI aims to provide standardised formats for
financial statements of non-corporate entities to enhance the quality, understandability,
relevance, reliability, comparability, consistency and comprehensiveness of financial
statements prepared by entities to which the Guidance Note applies. This Guidance Note is
applicable for accounting periods beginning on or after April 1, 2024.
Question 2: To whom is the Guidance Note applicable?
Response: All Business or Professional Entities, other than Companies incorporated under
Companies Act and Limited Liability Partnerships incorporated under Limited Liability
Partnership Act are considered to be Non-Corporate entities. The most common structures of
Non-Corporate entities are as follows:
(a) Sole proprietorship firms
(b) Hindu Undivided Family
(c) Partnership Firms
i) Registered Partnership Firms
ii) Unregistered Partnership Firms
(d) Association of Persons
i) Partnership firms not covered above
ii) Body of Individuals
iii) Resident welfare Associations
(e) Society registered under any law for the time being in force
(f) Trusts (private or public) registered under any law for the time being in force or
unregistered
(g) Statutory Corporations, Autonomous bodies and Authorities
(h) Any form of organisation that is engaged fully or partially in any Business or
Professional activities.
Exceptions
It may be pertinent to note that this Guidance Note is applicable for the purpose of
preparation of the financial statements of Non-Corporate Entities except where:
a. Formats/principles are specifically prescribed by the relevant Statute or Regulator or any
Authority;
b. Autonomous Bodies under Government of India are required to compile their accounts in a
uniform format of accounts as prescribed by Government of India, Ministry of Finance; or
c. Guidance has been specifically given by ICAI (e.g., Educational Institutions, Political
Parties, Not-for Profit Entities, etc.).
Question 3: What is the applicability of the Technical Guide on Financial Statements of
Non-corporate entities which was issued earlier in the year 2022 in the specific context
of introduction of this Guidance Note on same subject?
Response: The Technical Guide on Financial Statements of Non-corporate entities was
issued in the year 2022. This Guide recommended the formats for preparation of financial
statements of non-corporate entities so as to standardise the information to be presented in the
financial statements of non-corporate entities.
In order to prescribe more authoritative guidance for the members of ICAI, this Technical
Guide was upgraded into a Guidance Note on Financial Statements of Non-Corporate
Entities.
In view of the above, the Technical Guide on Financial Statements of Non-Corporate Entities
stands superseded by the Guidance Note with effect from April 1, 2024.
Therefore, for accounting periods beginning on or after April 1, 2024, the Guidance Note on
Financial Statements of Non-corporate entities is applicable.
Question 4: Does this Guidance Note intend to prescribe the formats for financial
statements as the presentation formats for the categories of entities to which it applies
Response: Yes, the Guidance Note intends to specifically prescribe the formats for financial
statements as the presentation format for the categories of entities to which it applies.
Question 5: What is the responsibility of the Auditor when a non-corporate entity
(client) fails to comply with the presentation formats as specified in the Guidance Note?
Response: ICAI has, from time to time, issued ‘Guidance Notes’ on a number of matters.
The authority of this Guidance Note is the same as that of any other Guidance Note issued by
the ICAI.
In this regard, it is pertinent to note that a clarification issued by the ICAI regarding the level
of authority attached to the various documents issued by the Institute and the degree of
compliance required in respect thereof inter alia provides as under:
“Guidance Notes, though recommendatory in nature, are issued to assist professional
accountants in implementing the Engagement Standards and the Standards on Quality
Control issued under the authority of the Council. Guidance Notes are also issued to provide
guidance on other generic or industry specific audit issues, not necessarily arising out of a
Standard. Professional accountants should be aware of and consider Guidance Notes
applicable to the engagement. A professional accountant who does not consider and apply
the guidance included in a relevant Guidance Note should take reasonable and adequate
care in performing the alternate procedures adopted by him to deal with the objectives and
basic principles set out in the Guidance Note. In such situations, a professional accountant
should also document the rationale in performing the alternate procedures. Similarly, while
discharging his attest function, a member should examine whether the recommendations in a
Guidance Note relating to an accounting matter have been followed or not. If the same have
not been followed, the member should consider whether keeping in view the circumstances of
the case, a disclosure in his report is necessary in accordance with Engagement Standards.”
‘Clarification Regarding Authority Attached to Documents Issued by the Institute’ can be
accessed at the following link: https://www.icai.org/post/aasb-announ-19082023
In the above context, where the client does not furnish the financial statements in the
presentation format or does not comply with the requirements prescribed in the Guidance
Note, the auditor is required to disclose the same in his / her report. The auditor shall exercise
his / her professional judgment in determining whether such non-adherence will result in a
modified opinion as per the Standards on Auditing.
Question 6: XYZ Foundation is a not-for profit organisation working to uphold the
rights of children in India. It prepares financial statements that are subject to audit.
Whether the Guidance Note on Financial Statements of Non-corporate Entities is
required to be applied while preparing financial statements of XYZ foundation?
Response: This Guidance Note is relevant for the purpose of preparation of the financial
statements of Non-Corporate Entities as per Question 2 of these FAQs.
As regards Not for Profit Organisations, ICAI has issued a ‘Technical Guide on Accounting
for Not-for-profit organisations’ (https://resource.cdn.icai.org/74188asb60123.pdf) to
recommend uniform accounting principles in accordance with the Accounting Standards and
other generally accepted accounting principles in India for the preparation and presentation of
financial statements of NPOs to meet the common information needs of the various
stakeholders.
Formats for NPOs have been specifically recommended in the Technical Guide on NPOs and
the same are relevant for the purpose of preparation of financial statements of NPOs.
Hence, in the given case, for preparation of financial statements of XYZ foundation, the
Technical Guide on Accounting for NPOs is relevant.
Question 7: Can additional line items be added in the Balance Sheet, or is it mandatory
to strictly follow the line items prescribed in the Guidance Note?
Response: The ‘General Instructions for preparation of Balance Sheet and Statement of
Profit and Loss of a Non-corporate entity’ as contained in the Guidance Note inter-alia
provide as follows:
‘This part set-outs the minimum requirements for disclosure on the face of the Balance Sheet,
and the Statement of Profit and Loss (hereinafter referred to as “Financial Statements” for
the purpose of the Format) and Notes. Line items, sub-line items and sub-totals shall be
presented as an addition or substitution on the face of the Financial Statements when such
presentation is relevant to an understanding of the Non-Corporate entity’s financial position
or performance or to cater to industry/sector-specific disclosure requirements or when
required for compliance with the amendments to the relevant statutes or under the
Accounting Standards.’
In accordance with the above, a line item can be substituted or additional line items, sub-line
items and sub-totals can be presented on the face of the Financial Statements.
Question 8: The Guidance Note set out minimum line items that are required to be
presented on the face of the financial statements in terms of current and previous period
figures. However, if the figures in respect of a particular line item are ‘Nil’ in the
current year as well as immediately preceding period, then whether that item can be
omitted from being presented?
Response: The Guidance Note sets out the minimum requirements for disclosure on the face
of the Balance Sheet and the Statement of Profit and Loss. It allows flexibility to add or
substitute line items when such presentation is relevant to an understanding of the company’s
financial position or performance. However, it is also pertinent to note that the requirement to
present line items is in respect of those that carry values.
Accordingly, in case there is ‘Nil’ balance in respect of a line item in the current year as well
as in previous year, and its omission does not affect the true and fair view of the financial
statements, it can be omitted from the financial statements. Presenting a line item and zero
values in both current and previous periods may not serve any use.
Question 9: Whether comparative year figures of immediately preceding reporting
period are also required to be given in the same format as prescribed by the Guidance
Note?
Response: As per the ‘Framework for the Preparation and Presentation of Financial
Statements’, one of the qualitative characteristics of Financial Statements is ‘Comparability’.
Paragraphs 39-42 of the said framework elaborate on the same and inter alia state in
paragraph 42 “Users wish to compare the financial position, performance and cash flows of
an enterprise over time. Hence, it is important that the financial statements show
corresponding information for the preceding period(s).”
Moreover, paragraph 5 of the ‘General Instruction for preparation of Balance and Statement
of profit and loss of a non-corporate entity’ may be noted which state as under:
Except in the case of the first Financial Statements prepared by the Non-Corporate entity
(after its incorporation) the corresponding amounts (comparatives) for the immediately
preceding reporting period for all items shown in the Financial Statements including notes
shall also be given.
Accordingly, with effect from April 1, 2024, the formats prescribed in the Guidance Note is
to be applied in preparation and presentation of financial statements of non-corporate entities
including comparative year figures, with the exception for entities which are preparing their
first financial statements after incorporation.
Question 10: What is the applicability of Accounting Standards to Non-company
entities from April 1, 2024?
Response: The applicability of Accounting Standards to non-company entities is prescribed
by the ICAI. At the time of issuance of the Guidance Note, the Announcement regarding
criteria for classification of Non-company entities for applicability of Accounting Standards
that came into effect in respect of accounting periods commencing on or after April 1, 2020
was applicable. However, subsequently, ICAI issued a ‘Revised Criteria for classification of
Non-company entities for applicability of Accounting Standards’, wherein the Non-company
entities are classified into two categories, viz., Micro, Small and Medium Sized Entities
(MSMEs) and Large entities. Further, certain exemptions/relaxations have been provided to
MSMEs.
The revised scheme for applicability of Accounting Standards to Non-company entities has
come into effect in respect of accounting periods commencing on or after April 1, 2024, and
the same is reproduced below:
“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 insofar 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.
Annexure 1
Applicability of Accounting Standards to Non-company Entities
The Accounting Standards issued by the ICAI, as on April 1, 2024, and such standards
as issued from time-to-time are applicable to Non-company entities subject to the
relaxations and exemptions in the announcement. The Accounting Standards issued by
ICAI as on April 1, 2024, are:
(1) Applicability of the Accounting Standards to Large Non- company entities.
Large entities are required to comply in full with all the Accounting Standards.
(2) Applicability of the Accounting Standards and exemptions/relaxations for Micro,
Small and Medium sized Non-company entities
(A) Accounting Standards not applicable to Micro, Small and Medium sized entity
(MSME) in their entirety
(i) Accounting Standards not applicable to all MSMEs in their entirety:
o AS 3, Cash Flow Statements
o AS 17, Segment Reporting
o AS 20, Earnings per Share
o AS 24, Discontinuing Operations
(ii) AS 18, Related Party Disclosures and AS 28, Impairment of Assets not
applicable in their entirety to MSMEs :
a) whose turnover (excluding other income) does not exceed rupees fifty
crore in the immediately preceding accounting year;
b) which does not have borrowings in excess of rupees ten crore at any time
during the immediately preceding accounting year; and
c) which is not a Holding and subsidiary of an MSME not covered above.
(B) Relaxations/exemptions from certain requirements of Accounting Standards to
Micro, Small and Medium sized Entities (MSMEs)
(i) Accounting Standard (AS) 10, Property, Plant and Equipment
MSMEs may not comply with paragraph 87 relating to encouraged
disclosures.
(ii) AS 11, The Effects of Changes in Foreign Exchange Rates
MSMEs may not comply with paragraph 44 relating to encouraged
disclosures.
(iii) AS 15, Employee Benefits
(1) MSMEs may not comply with the following paragraphs:
(a) paragraphs 11 to 16 of the standard to the extent they deal with
recognition and measurement of short-term accumulating
compensated absences which are non-vesting (i.e., short-term
accumulating compensated absences in respect of which employees
are not entitled to cash payment for unused entitlement on leaving);
(b) paragraphs 46 and 139 of the Standard which deal with discounting
of amounts that fall due more than 12 months after the balance sheet
date;
(c) recognition and measurement principles laid down in paragraphs 50
to 116 and presentation and disclosure requirements laid down in
paragraphs 117 to 123 of the Standard in respect of accounting for
defined benefit plans. However, such entities may calculate and
account for the accrued liability under the defined benefit plans by
reference to some other rational method, e.g., a method based on the
assumption that such benefits are payable to all employees at the end
of the accounting year; and
(d) recognition and measurement principles laid down in paragraphs 129
to 131 of the Standard in respect of accounting for other long-term
employee benefits. Such entities may calculate and account for the
accrued liability under the other long-term employee benefits by
reference to some other rational method, e.g., a method based on the
assumption that such benefits are payable to all employees at the end
of the accounting year.
(iv) AS 19, Leases
MSMEs may not comply with paragraphs 22 (c), (e) and (f); 25 (a), (b) and
(e); 37 (a), (f) and (g); 38; and 46 (b), (d) and (e) relating to disclosures.
(v) AS 22, Accounting for Taxes on Income
(a) MSMEs shall comply with the requirements of AS 22, Accounting for
Taxes on Income, for Current tax defined in paragraph 4.4 of AS 22,
with recognition as per paragraph 9, measurement as per paragraph 20
of AS 22, and presentation and disclosure as per paragraphs 27-28 of
AS 22.
(b) Transitional requirements
On the first occasion when an MSME avails this exemption, the
accumulated deferred tax asset/liability appearing in the financial
statements of immediate previous accounting period, shall be adjusted
against the opening revenue reserves/owner’s funds.
(vi) AS 26, Intangible Assets
MSMEs may not comply with paragraphs 90(d)(iii); 90(d)(iv) and 98
relating to disclosures.
(vii) AS 28, Impairment of Assets
(a) MSMEs that are otherwise not exempted from applying this standard
[refer note 2(A)(ii)] are allowed to measure the ‘value in use’ on the
basis of reasonable estimate thereof instead of computing the value in
use by present value technique. Consequently, if such MSME chooses to
measure the ‘value in use’ by not using the present value technique, the
relevant provisions of AS 28, such as discount rate etc., would not be
applicable to such an entity. Further, such an entity need not disclose the
information required by paragraph 121(g) of the Standard.
(b) MSMEs that are otherwise not exempted from applying this standard
[refer note 2(A)(ii)] may not comply with paragraphs 121(c)(ii);
121(d)(i); 121(d)(ii) and 123 relating to disclosures.
(viii) AS 29, Provisions, Contingent Liabilities and Contingent Assets
MSMEs may not comply with paragraphs 66 and 67 relating to disclosures.
(C) In case of Micro, Small and Medium sized Non-company entities, generally
there are no such transactions that are covered under AS 14, Accounting for
Amalgamations, or jointly controlled operations or jointly controlled assets
covered under AS 27, Financial Reporting of Interests in Joint Ventures.
Therefore, these standards are not applicable to Micro, Small and Medium size
Non-company entities. However, if there are any such transactions, these entities
shall apply the requirements of the relevant standard.
(D)AS 21, Consolidated Financial Statements, AS 23, Accounting for Investments
in Associates in Consolidated Financial Statements, AS 27, Financial Reporting
of Interests in Joint Ventures (to the extent of requirements relating to
Consolidated Financial Statements), and AS 25, Interim Financial Reporting, do
not require a Non-company entity to present consolidated financial statements
and interim financial report, respectively. Relevant AS is applicable only if a
Non-company entity is required or elects to prepare and present consolidated
financial statements or interim financial report.”
The revised scheme can also be accessed at the following link
https://resource.cdn.icai.org/82761asb66837.pdf
Accordingly, the revised criteria for applicability of Accounting Standards is applicable from
April 1, 2024 onwards.