The Institute of Chartered Accountants of India (ICAI) recently made significant updates to its Accounting Standards framework to improve financial reporting transparency and standardization in India. The revised Classification Criteria for Non-Company Entities, approved during the ICAI Council’s 433rd meeting in August 2024, brings in new requirements that will impact how various non-company entities undergo auditing processes.
Effective from April 1, 2024, the changes include the disclosure of accounting policies, valuation of inventories, cash flow statements, contingencies, and events occurring after the balance sheet date, among other aspects. Non-company entities are now classified into two categories for the applicability of Accounting Standards: micro, small, and medium-sized entities (MSMEs) and large entities. While large entities must adhere to all Accounting Standards, MSMEs are granted certain exemptions and relaxations.
Specific Accounting Standards, such as AS 3 (Cash Flow Statements), AS 17 (Segment Reporting), and AS 24 (Discontinuing Operations), are not entirely applicable to all MSMEs. Additionally, AS 18 (Related Party Disclosures) and AS 28 (Impairment of Assets) are not fully applicable to MSMEs. If an entity transitions from not being classified as an MSME to qualifying as one, it will not receive the exemptions or relaxations until it maintains that classification for two consecutive years.
The changes resulting from this update will be integrated into the Accounting Standards upon the release of the updated Compendium of Accounting Standards. In other recent news, ICAI announced the results of the Chartered Accountants Intermediate and Foundation examinations held in September 2024. In September, a total of approximately 139,646 candidates took the Intermediate exam across 459 centers.
These revisions by ICAI signify a commitment to enhancing the financial reporting landscape for non-company entities in India. By providing clearer guidelines and standards, the aim is to ensure better transparency, accountability, and consistency in financial reporting practices, benefiting both businesses and stakeholders. This move is expected to streamline auditing processes, improve data accuracy, and build greater trust in financial information provided by non-company entities.