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Accounting standards (AS) are written documents and policies that provides principles for recognition, measurement, treatment, presentation and disclosures of accounting transactions in the financial statements. For example: Accounting standard on inventory will provide principles on the criteria on the basis of which inventory is recognised, what all cost will form part of inventory, how to treat those cost and how to present inventory in the financial statement and relevant disclosures. These Accounting Standards are recommended by Institute of Chartered Accountant of India (ICAI) and becomes applicable to entities only when Central Government notifies it. Currently, there are 27 Accounting standards in total.

Objective of Accounting Standards (AS):

Accounting standards have been introduced with the objective to standardise accounting practices as this will help in comparing the financial statements of different entities falling in the same industry to which such accounting standards are applicable.

Applicability of Accounting Standards:

For the purpose of applicability, entities are grouped as follows:

 Applicability of Accounting Standard Entities

 Classification of Entities in detail:

Corporate Entities: For the purpose of applicability of AS, companies are categorised as follows:

Small and Medium Companies (SMCs): SMCs are companies that satisfy the following conditions:

a) Equity and debt securities of the company are not listed or are not in the process of listing of any stock exchange, whether in India or outside India

b) Company is not a bank or financial institution or insurance company

c) Company’s turnover (excluding other income) does not exceed Rs. 50 crores in the immediately preceding accounting year

d) Company does not have borrowing (including public deposits) exceeding Rs. 10 crores at any time during the immediately preceding accounting year and

e) Company is not a holding company or subsidiary of a non-SMC.

Partial Exemption:

Certain relaxations are provided with respect to following AS:

AS 17- Segment Reporting

AS 15- Employee Benefits

AS 19- Leases

AS 20- Earnings Per Share (EPS)

AS 29- Provisions, contingent liabilities and contingent assets

Full Exemption

AS 3- Cash Flow Statements, shall not apply to SMCs if it is a One Person Company (OPC), dormant company and Small company.


Non-SMCs: All the accounting standards are applicable to Non-SMCs.

Non-Corporate Entities: Non-corporate entities are entities other than companies (as defined in the Companies Act, 2013). It includes

1. Cooperative society and charitable entity if they carry on any commercial, industrial or business activities (even if a very small portion), in such cases AS will apply to its entire activity (whether charitable or otherwise)

 2Partnership firms and sole proprietary concerns

3. Societies registered under Societies registration Act, Hindu Undivided Family (HUF) and Association of Person (AOP).

Non-corporate entities are not under any obligatory requirement to follow accounting standards, but if such entities are required to get its financial statements attested, it will be duty of member of institute (CA in practice) to examine whether AS have been complied with. So indirectly, non-corporate entities are also required to follow accounting standards on the basis of level in which it falls.

Levels of non-corporate entities are discussed below:



Accounting Standards applicable

Level I

Entities whose equity or debt instruments are listed or are in process of listing on any stock exchange (in or outside India)

Banks (including co-operative banks), financial institutions or entities carrying on Insurance business

All commercial, industrial or business reporting entities having:

Ø Borrowings > 10 crores (at any time during immediately preceding accounting year)

Ø Turnover > 50 crores (during preceding accounting year)

 Holding or subsidiary entities of any of the above.


All the accounting standards are applicable to Level I entities. However AS 21, 23 and 27 will apply based on regulatory requirement.

Level II

 Other than Level I entities if they fall under the following limit.

 All commercial, industrial or business reporting entities having:

Ø Borrowings > 1 crores (at any time during immediately preceding accounting year)

Ø Turnover > 10 crores (during preceding accounting year)

 • Holding or subsidiary entities of any of the above.


Fully applicable AS

All accounting standards are applicable to Level II entities except AS 21, 23, 25, 27 and those discussed below.

AS applicable but certain relaxations regarding disclosure requirement

AS 19 - Leases

AS 20 - Earning Per Share

AS 29 – Provisions, contingent liabilities and contingent assets.

Accounting standards not applicable

AS 3 - Cash Flow Statement

AS 17 – Segment Reporting


Level III

  All non-corporate entities other than Level I and Level II.


In addition to partial and full exemption as given in Level II, full exemption with respect to these two are also available:

AS 18 – Related Party Disclosures

AS 24 – Discontinuing Operations


accounting standards

Requirement to follow AS:

Corporate entities are required to follow accounting standards while preparing its financial statements as per Section 129 of the Companies Act, 2013 and as discussed above, non-corporate entities are also required to comply Accounting standards if they want to get their accounts attested from the member of institute (CA in practice).

Entities shall comply with AS 25 only if entity is required (or it voluntarily opts) to prepare and present an interim financial report.

In case of conflict between Act and Accounting standards:

In case there is any conflict between provisions of any applicable Act and Accounting Standard (AS), the provisions of the Act shall prevail to that extent.

Also Read: Income Computation & Disclosure Standards 2018

Disclaimer: This information is updated till 18 August 2018.

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