What accounting standard should Non-Company Entities follow?

May 7, 2025

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.

Classification of Accounting Standards

What are Micro, Small and Medium Sized Entity (MSME)?

1. means, a non-company entity, 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.

2. which is not a bank, financial institution or an insurance company.

3. whose turnover (excluding other income) does not exceed two hundred and fifty crore rupees in the immediately preceding accounting year.

4. which does not have borrowings in excess of fifty crore rupees at any time during the immediately preceding accounting year; and

5. which is not a holding or subsidiary of an entity which is not a micro, small and medium-sized entity.

General Points

1. A large entity is defined as a non-corporate entity that does not qualify as an MSME.

2. The terms Level II, Level III, and Level IV used in Accounting Standards will now be referred to as Micro, Small, and Medium-Sized Entities.

3. The term Level I will now be referred to as a Large Entity.

4. These revisions do not apply to non-company entities required to follow Indian Accounting Standards (Ind AS) or other specific regulatory requirements.

5. The updates from this announcement will be included in the next edition of the Compendium of Accounting Standards.

Applicability of Accounting Standards:

1. Mandatory Standards (Must be followed):

Category	Applicability
Large entities	Must comply fully with all Accounting Standards in full.
MSME’s	Must comply with all standards except for those specifically exempted or

2. Optional Standards:

These standards are optional for MSMEs, meaning they can choose whether to apply them or not. However, if they choose to apply them, they must fully comply.

3. Exempted Standards for MSMEs:

These standards are either fully exempted or partially exempted for MSMEs, meaning they do not need to comply with certain requirements.

Fully Exempted Standards.

Partially Exempted Standards.

Additional Notes:

1. Disclosure of MSME Status: If an MSME uses exemptions or relaxations, it must disclose its MSME status in the financial statements.

2. Loss of MSME Status: If an entity no longer qualifies as an MSME, it must comply with all Accounting Standards from the current period. Previous period figures need not be revised.

3. Becoming an MSME: An entity that newly qualifies as an MSME can only avail exemptions or relaxations after maintaining MSME status for two consecutive years.

4. Selective Use of Exemptions: If an MSME uses some but not all exemptions, it must disclose which exemptions it has used.

5. Non-Use of Exemptions: If an MSME chooses not to use any exemptions, it must fully comply with all relevant Accounting Standards.

6. Transparency: Partial use of exemptions must be clearly disclosed and should not mislead users of the financial statements.