| Accounting Standards |
CRITERIA FOR CLASSIFICATION OF ENTERPRISES
1. Criteria for classification of non-corporate entities as decided by the Institute of Chartered Accountants of India
Level I EntitiesNon-corporate entities which fall in any one or more of the following categories, at the end of the relevant accounting period, are classified as Level I entities:
i. Entities whose equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India
ii. Banks (including co-operative banks), financial institutions or entities carrying on insurance business.
iii. All commercial, industrial and business reporting entities, whose turnover (excluding other income) exceeds rupees fifty crore in the immediately preceding accounting year.
iv. All commercial, industrial and business reporting entities having borrowings (including public deposits) in excess of rupees ten crore at any time during the immediately preceding accounting year.
v. holding and subsidiary entities of any one of the above.
Level II Entities (SMEs)Non-corporate entities which are not Level I entities but fall in any one or more of the following categories are classified as Level II entities:
i. All commercial, industrial and business reporting entities, whose turnover (excluding other income) exceeds rupees forty lakh but does not exceed rupees fifty crore in the immediately preceding accounting year.
ii. All commercial, industrial and business reporting entities having borrowings (including public deposits) in excess of rupees one crore but not in excess of rupees ten crore at any time during the immediately preceding accounting year.
iii. Holding and subsidiary entities of any one of the above.
Level III Entities (SMEs)Non-corporate entities which are not covered under Level I and Level II are considered as Level III entities.
2. Criteria for classification of companies under the Companies (Accounting Standards) Rules, 2006
Small and Medium-Sized Company (SMC) as defined in Clause 2(f) of the Companies (Accounting Standards) Rules, 2006:(f) “Small and Medium Sized Company” (SMC) means, a company-
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 rupees fifty crore in the immediately preceding accounting year;
iv. which does not have borrowings (including public deposits) in excess of rupees ten crore at any time during the immediately preceding accounting year; and
v. which is not a holding or subsidiary company of a company which is not a small and medium-sized company.
Explanation: For the purposes of clause (f), a company shall qualify as a Small and Medium Sized Company, if the conditions mentioned therein are satisfied as at the end of the relevant accounting period.Non-SMCs
Companies not falling within the definition of SMC are considered as Non-SMCs.
Harmonisation of differences between the Accounting Standards issued by the ICAI and those notified by the Central Government
The Central Government, on December 7, 2006, notified Accounting Standards in the Companies (Accounting Standards) Rules, 2006. These Accounting Standards were different in certain respects from the Accounting Standards issued by the council of ICAI. It has now been decided to harmonise these differences and clarify as to the applicability of both the sets of Accounting Standards to various entities.
Harmonisation of Differences caused by Accounting Standards Interpretations (ASIs)
The consensus portion of most of the ASIs has been included as ‘Explanation’ to the relevant paragraphs in the notified Accounting Standards. The Council has decided to follow the same. Accordingly, Standards issued by ICAI will also have these ASIs inbuilt in the standard itself. Thus, the Standards are being amended to incorporate the consensus portion of the ASIs as explanation to the relevant paragraphs.
Withdrawal of Accounting Standards Interpretations
ASI 2, Accounting for Machinery Spares (Re. AS 2 and AS 10) and ASI 11, Accounting for Taxes on Income in case of an Amalgamation (Re. As 22) have been withdrawn. These ASIs would not be included in the standards.Issuance of Guidance Notes in lieu of ASIs
The council decided to withdraw the following ASIs and issue the same as Guidance Notes.ASI 12 Applicability of AS 20 (Re. AS 20)
ASI 23 Remuneration paid to key management personnel — whether a related party transaction (Re. AS 18)
ASI 27 Applicability of AS 25 to Interim Financial Results (Re. AS 25)
ASI 29 Turnover in case of Contractors (Re. AS 7 (Revised 2002)
Harmonisation of Definition of Smaller Companies
The Council has retained three levels of entities, for Non- Corporate Enterprises. However, the ICAI has harmonized the definitions for smaller companies to fall in line with the Companies (Accounting Standards) Rules, 2006.It must be noted here, that only corporate entities shall be governed by the Accounting Standard provisions contained in the notified Rules.
The applicability of Accounting Standards to various entities is summarized in the following tables.
Note:
· The under mentioned Accounting Standards shall be applicable to all corporate entities for accounting periods commencing on or after December 7, 2006;
· For Non-Corporate entities, it shall be applicable from 1st April 1, 2008 (with standards which are being amended to incorporate changed definitions of SMEs and the consensus portion of the ASIs)
Applicability of Accounting Standards - An overview| Accounting Standards | To all Corporate Entities [As per Companies (Accounting Standards) Rules] | To all Non-Corporate entities [As per ICAI Accounting Standards] | |
| AS 1 | Disclosure of Accounting Policies | Y | Y |
| AS 2 | Valuation of Inventories | Y | Y |
| AS 4 | Contingencies and Events Occurring After the Balance Sheet Date | Y | Y |
| AS 5 | Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies | Y | Y |
| AS 6 | Depreciation Accounting | Y | Y |
| AS 7 | Construction Contracts (Revised 2002) | Y | Y |
| AS 9 | Revenue Recognition | Y | Y |
| AS 10 | Accounting for Fixed Assets | Y | Y |
| AS 11 | The Effects of Changes in Foreign Exchange Rates (Revised 2003) | Y | Y |
| AS 12 | Accounting for Government Grants | Y | Y |
| AS 13 | Accounting for Investments | Y | Y |
| AS 14 | Accounting for Amalgamations | Y | Y |
| AS 15 | Employee Benefits (Refer Note 1) | Y | Y |
| AS 16 | Borrowing Costs | Y | Y |
| AS 18 | Related Party Disclosures | Y | Not applicable to Level III |
| AS 19 | Leases (Refer Note 2) | Y | Y |
| AS 20 | Earnings Per Share (Refer Note 3) | Y | Y |
| AS 22 | Accounting for Taxes on Income | Y | Y |
| AS 24 | Discontinuing Operations | Y | Not applicable to Level III |
| AS 25 | Interim Financial Reporting (Refer Note 6) | Y | Y |
| AS 26 | Intangible Assets | Y | Y |
| AS 28 | Impairment of Assets (Refer Note 4) | Y | Y |
| AS 29 | Provisions, Contingent Liabilities and Contingent Assets (Refer Note 5) | Y | Y |
The Exemptions available to both, SMCs (i.e., governed by the Rules) and also available to Level II and Level III Enterprises (i.e., governed by the ICAI Accounting Standards) in entirety are given in the following table:
| AS 3 | Cash Flow Statements |
| AS 17 | Segment Reporting |
| 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 requirement relating to Consolidated Financial Statements) |
Relaxations of certain requirements for SMCs / Level II & Level III enterprises :
| Note No. | Accounting Standards | Relaxations available to Small and Medium Companies, Level II Enterprises and Level III Enterprises |
| 1 | AS 15, Employee Benefits | • Paragraphs 11-16 dealing with recognition and measurement of short term accumulating compensated absences which are non-vesting • Paragraphs 46 and 139 dealing with discounting of amounts that fall due more than 12 months after the balance sheet date • Paragraphs 50–116 dealing with Defined Benefit plans • Paragraphs 117–123 dealing with actuarial valuations • Paragraphs 129-131 in respect of other long-term benefits Note: AS 15 (Revised 2005) issued by ICAI exempts Level II enterprises having less than 50 employees from the application of PUC method, i.e., these enterprises can use other rational method for accrual of liabilities. However, the Companies (Accounting Standards) Rules, 2006 do not contain such exemption. |
| 2 | AS 19, Leases 22(c), | • Requirements relating to disclosures as given in paragraphs (e) and (f); 25(a), (b) and (e); 37(a) and (f); and 46(b) and (d) are not applicable to SMCs and level II/III enterprises. • Further to these relaxations, Level III enterprises are also not required to give Paragraphs 37(g) and 46(e) disclosures. |
| 3 | AS 20, Earnings Per Share | • Diluted earnings per share (both including and excluding extraordinary items) is not required to be disclosed for SMCs and level II/III non corporate enterprises. • Further, Information required by paragraph 48(ii) of AS 20 regarding disclosures for parameters used in calculation of EPS, are also not required to be disclosed by Level III entities. |
| 4 | AS 28, Impairment of Assets | • Value in use can be based on reasonable estimate instead of computing it by present value technique. Further, information required by paragraph 121(g) relating to discount rate used, need not be disclosed. |
| 5 | AS 29, Provisions, Contingent Liabilities and Contingent Assets | • Paragraphs 66 and 67 relating to disclosures for amount and description for each class of provision are not required to be disclosed. |
| 6 | AS 25, Interim Financial Reporting | • AS 25 is applicable only if a company/non-corporate entity elects to prepare and present an interim financial report. Only certain Non-SMCs/Level I entities are required by the concerned regulatory to present interim financial results, eg, quarterly financial results required by the SEBI. |
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