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What the criteria for Classification of Entities and Applicability of Accounting Standards?


The Accounting Standards Board of ICAI has classified the Enterprises for the Application of Accounting Standards with the Financial Statements. For which, the ICAI has already issued an announcement called Classification of Entities and Applicability of Accounting Standards and it was notified by the Central Government of India.

As per ICAI the Entities are classified into three Levels, but as per the Central Government notification there are two Levels only. So, there is a difference between the issued and notified announcements. And these two sets are discussed below in detail.

Categories of Entities or Companies issued by the ICAI

The ICAI has already issued an announcement on Criteria for Classification of Entities and Applicability of Accounting Standards to enable the Companies to prepare the Financial Statements in compliance with Accounting Standards. And this announcement classified the Entities into three Levels based on turnover, borrowing, and other criteria.

  1. Level I Entities.
  2. Level II Entities.
  3. Level III Entities.

These are called as Non Corporate Entities, Level II and Level III Entities are considered as Small and Medium Entities (SMEs). The above three levels of entities are discussed in more details in Criteria for classification of non-corporate entities as decided by the ICAI article.

No Relaxation was given to Level II and Level III enterprises in respect of recognition and measurement principles. Relaxations were provided with regard to Disclosure Additional Requirements.

Categories of Companies or Entities notified by the Central Government

The Criteria for Classification of Entities and Applicability of Accounting Standards was also notified by the Central Government of India for the Companies, where the Government has just mentioned only two levels of Company and they are

  1. Small and Medium sized Companies (SMCs) as defined in the Companies (Accounting Standards) Rules, 2006
  2. Companies other than Small and Medium sized Companies (Non SMCs).

The Non-SMCs are required to comply with all the Accounting Standards in their entire segment. But SMCs are provided with certain exemptions/ relaxations while presenting the Financial Statements in complains with the Accounting Standards. And these two categories are called as Companies or Corporate Entities. The above two levels of companies are discussed in more details in Criteria for classification of Corporate Entities as notified by the Central Government of India article.

So, consequent to certain differences between the ICAI and the Central Government the Accounting Standards Board of the ICAI decided to revise the Criteria for Classification of Entities and Applicability of Accounting Standards and want to make such changes only to the Non Corporate Entities i.e. entities issued by the ICAI.

Though the classification criteria and applicability of Accounting Standards are mainly aligned with the criteria prescribed for Corporate Entities, it was also decided to continue for the Non Corporate Entities also.

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