Accounting and Auditing

APPLICABILITY OF ACCOUNTING STANDARDS TO VARIOUS ENTITIES

Accounting Standard	Title of AS	Companies		Non Corporates
Accounting Standard	Title of AS	Non SMCs	SMCs	Level I	Level II (SMEs)	Level III (SMEs)
AS 1	Disclosure of Accounting Policies	✓	✓	✓	✓	✓
AS 2	Valuation of Inventories (Refer Note 4)	✓	✓	✓	✓	✓
AS 3	Cash Flow Statements	✓	Not Applicable in entirety, i.e., Optional	3	Not Applicable in entirety, i.e., Optional	Not Applicable in entirety, i.e., Optional
AS 4	Contingencies and Events Occurring After the Balance Sheet Date (Refer Note 4)	✓	✓	✓	✓	✓
AS 5	Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies	✓	✓	✓	✓	✓
AS 6	Depreciation Accounting	Withdrawn
AS 7	Construction Contracts (revised 2002)	✓	✓	✓	✓	✓
AS 9	Revenue Recognition	✓	✓	✓	✓	✓
AS 10	Property, Plant and Equipment (Refer Note 4)	✓	✓	✓	✓	✓
AS 11	The Effects of Changes in Foreign Exchange Rates (Revised 2003) (Refer Note 5)	✓	✓	✓	✓	✓
AS 12	Accounting for Government Grants	✓	✓	✓	✓	✓
AS 13	Accounting for Investments (Refer Note 4)	✓	✓	✓	✓
AS 14	Accounting for Amalgamations (Refer Note 4)	✓	✓	✓	✓	✓
AS 15	Employees Benefits (Revised 2005)	✓	Relaxations from certain requirements have been given to SMCs (Refer Note 2)	✓	Relaxations from certain requirements have been given to Non-corporate Entities falling in Level II and Level III (SMEs) (Refer Note 2)
AS 16	Borrowing Costs	✓	✓	✓	✓	✓
AS 17	Segment Reporting	✓	Not Applicable in entirety, i.e., Optional	✓	Not Applicable in entirety, i.e. Optional	Not Applicable in entirety, i.e., Optional
AS 18	Related Party Disclosures	✓	✓	✓	Applicable	Not Applicable in entirety, i.e. Optional
AS 19	Leases	✓	Relaxations from certain requirements have been given to SMCs (Refer Note 2)	✓	Relaxations from certain requirements have been given to Non-corporate Entities falling in Level II and Level III (SMEs) (Refer Note 2)
AS 20	Earnings Per Share	✓		✓	Same as above	Same as above
AS 21	Consolidated Financial Statements (Refer Note 4)	✓	Not applicable to SMCs since relevant Regulators require compliance with them only by certain Non-SMCs (Refer Note 1)	✓	Not applicable to all Non-corporate Entities since the relevant Regulators require compliance with them only by certain Level I entities (Refer Note 1)
AS 22	Accounting for Taxes on Income	✓	✓	✓	✓	✓
AS 23	Accounting for Investments in Associates in Consolidated Financial Statements	✓	Not applicable to SMCs since the relevant Regulatorsrequire compliance with them only by certain Non-SMCs (Refer Note 1)	✓	Not applicable to all Non-corporate Entities since the relevant Regulators require compliance with them only by certain Level I entities (Refer Note 1)
AS 24	Discontinuing Operations	✓	✓	✓	Applicable	Not Applicable in entirety, i.e. Optional
AS 25	Interim Financial Reporting	✓ Applicable to some non-SMCs where regulators require to present interim financial statements	(Refer Note 3)	Applicable to some non-SMCs where regulators require to present interim financial statements	(Refer Note 3)
AS 26	Intangible Assets	✓	✓	✓	✓	✓
AS 27	Financial Reporting of Interests in Joint Ventures	✓	Not applicable to SMCs since the relevant Regulatorsrequire compliance with them only by certain Non-SMCs (Refer Note 1)	✓	Not applicable to all Non-corporate Entities since the relevant Regulators require compliance with them only by certain Level I entities (Refer Note 1)
AS 28	Impairment of Assets	✓	Relaxations from certain requirements have been given to SMCs (Refer Note 2)	✓	Relaxations from certain requirements have been given to Non-corporate Entities falling in Level II and Level III (SMEs) (Refer Note 2)
AS 29	Provisions, Contingent Liabilities and Contingent Assets (Refer Note 4)	✓		✓

Notes:

AS 21, AS 23 and AS 27 (relating to consolidated financial statements) are required to be complied with by a company/non-corporate entity if the company / non-corporate entity, pursuant to the requirements of a statute/regulator or voluntarily, prepares and presents consolidated financial statements.
Relaxations from certain requirements have been given to SMCs and Non-Corporate Entities falling in Level II and Level III (SMEs) as follows:

Accounting Standard	Details of relaxations
AS 15	SMCs and Level II and Level III Non-Corporate entities are exempted from the applicability of the following paragraphs:
	Particulars	- All SMCs - Level II and Level III Non-Corporate entities where average no. of persons employed during the year is >=50	Level II and Level III Non-Corporate entities where average no. of persons employed during the year is < 50
	Recognition and measurement of short-term accumulated compensating absences which are non-vesting contained in paras 11 to 16	Exempted
	Discounting of amounts that fall due more than 12 months after balance sheet date under para 46 (Defined Contribution Plans) or para 139 (Termination Benefits)	Exempted
	Recognition and measurement principles under paras 50 to 116 and presentation and disclosures requirements under paras 117 to 123 for accounting of defined benefit plans	Exempted However, such entities should – a. Actuarially determine and provide for accrued liability using PUCM b. Determine discount rate by reference to market yields on Govt. bonds at balance sheet date c. Disclose actuarial assumptions as per para 120(l)	Exempted However, such entities may – Calculate and account accrued liability by reference to some other rational method, e.g. a method based on assumption that such benefits are payable to all employees at end of accounting year
	Recognition and measurement of other long-term employee benefits contained in paras 129 to 131	Exempted However such entities should – a. Actuarially determine and provide for accrued liability using PUCM. b. Determine discount rate by reference to market yields on Govt. bonds at balance sheet date Exempted	However, such entities may – Calculate and account accrued liability by reference to some other rational method, e.g. a method based on assumption that such benefits are payable to all employees at end of accounting year
AS 19	Paras 22 (c), (e) and (f); 25 (a), (b) and (e); 37 (a) and (f); and 46 (b) and (d) relating to disclosures are not applicable to SMCs/non-corporate entities falling in Level II. Paras 22 (c), (e) and (f); 25 (a), (b) and (e); 37 (a), (f) and (g); and 46 (b), (d) and (e) relating to disclosures are not applicable to Level III entities.
AS 20	Diluted earnings per share (both including and excluding extraordinary items) is not required to be disclosed by SMCs/ non-corporate entities falling in Level II and Level III and information required by para 48(ii) of AS 20 is not required to be disclosed by Level III entities if this standard is applicable to these entities.
AS 28	SMCs / non-corporate entities falling in Level II and Level III 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 a SMC / non-corporate entity falling in Level II or Level III 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 SMC / entity. Further, such an SMC / entity need not disclose the information required by para 121(g).
AS 29	Paras 66 and 67 relating to disclosures are not applicable to SMCs / non-corporate entities falling in Level II and Level III.

AS 25, Interim Financial Reporting, does not require a company / non-corporate entity to present interim financial report. It is applicable only if a company /non-corporate entity is required by a statute or a regulator or elects to prepare and present an interim financial report. Thus, the recognition and measurement requirements contained in this Standard are applicable only to the entities for preparation of interim financial results. For example, presently, SEBI requires listed entities to present interim financial results, e.g., quarterly financial results, those entities will apply this Standard.
The Ministry of Corporate Affairs (MCA) has, vide the Companies (Accounting Standards) Amendment Rules, 2016, amended AS 2, 4, 10, 13, 14, 21 and 29 The key amendments are summarised as under:

Accounting Standard	Key changes
AS 2	Inventories shall not include spare parts, servicing equipment and standby equipment which fall under the definition of PPE under revised AS 10 (i.e., those which are intended to be used for a period of more than 12 months).
AS 4	Dividends declared after balance sheet date but before the financial statements are approved for issue will not be recognised as a liability at the balance sheet date but be disclosed as part of notes to accounts.
AS 10	1. It defines as to what constitutes the unit of measure for recognition, i.e., what constitutes an item of PPE. 2. Entity has to choose either cost or revaluation model as its accounting policy for subsequent measurement. If an item of PPE is revalued, the entire class to which that asset belongs is revalued. 3. Cost of an item of PPE is its cash price at date of recognition. If payment is deferred beyond normal credit terms, then difference between cash price and total payment is charged as interest. 4. Component accounting is made mandatory in line with Schedule II of the Companies Act, 2013 5. Depreciation method applied to assets to be reviewed every financial year, any change in method to be accounted as change in accounting estimate in accordance with AS 5. 6. The initial cost of decommissioning, restoration and similar liabilities would also be included in the cost of PPE
AS 13	An investment property will now be accounted for in accordance with the cost model as prescribed in the revised AS 10 instead of AS 13.
AS 14	Disclosure required in situations where scheme of amalgamation prescribes a different treatment to be given to reserves of the transferor company as compared to the requirement of this standard. This requirement does not apply to any scheme of amalgamation approved under the Companies Act, 2013.
AS 21	Where an enterprise does not have a subsidiary but has an associate and/or JV, such an enterprise should also prepare consolidated financial statements in accordance with the applicable accounting standards.
AS 29	Amount of provision recognised under revised AS 10 with respect to decommissioning, restoration and similar liabilities should be discounted.

The aforesaid amendments are effective from April 1, 2017.

The MCA has, vide the Companies (Accounting Standards) Amendment Rules, 2018, substituted para 32 of AS 11. It now also states that remittance from a non-integral foreign operation by way of repatriation of accumulated profits does not form part of a disposal unless it constitutes return of the investment. The amendment is effective from 1st April, 2018, i.e. for FY 2018-19 onwards.

In last few years, ICAI has, barring some exceptions, followed Accounting Standards prescribed under the Companies (Accounting Standards) Rules, 2006 also for non-corporate entities under the project “Harmonisation of various differences between the Accounting Standards issued by the ICAI and the Accounting Standards notified by the Central Government”.

Accounting Standards Interpretations issued by ICAI, except the following, have been incorporated by way of explanation to the Accounting Standards on the lines of the Companies (Accounting Standards) Rules, 2006, as amended :
1. ASI 2 – Accounting for Machinery Spares (Re. AS 2 and AS 10)
2. ASI 11 – Accounting for Taxes on Income in case of an Amalgamation (Re. AS 22)
3. ASI 12 – Applicability of AS 20 (Re. AS 20)
4. ASI 23 – Remuneration paid to key management personnel – whether a related party transaction (Re. AS 18)
5. ASI 27 – Applicability of AS 25 to Interim Financial Results (Re. AS 25)
6. ASI 29 – Turnover in case of Contractors (Re. AS 7 (revised 2002))