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Announcement for Criteria for classification of Non-company entities for applicability of Accounting Standards
April, 01st 2021

Announcement

Criteria for classification of Non-company entities for applicability of
Accounting Standards

The Council, at its 400th meeting, held on March 18-19, 2021, considered the matter relating to
applicability of Accounting Standards issued by The Institute of Chartered Accountants of India (ICAI), to
Non-company entities (Enterprises). The scheme for applicability of Accounting Standards to Non-
company entities shall come into effect in respect of accounting periods commencing on or after April 1,
2020.

1. For the purpose of applicability of Accounting Standards, Non-company entities are classified into
four categories, viz., Level I, Level II, Level III and Level IV.

Level I entities are large size entities, Level II entities are medium size entities, Level III entities are
small size entities and Level IV entities are micro entities. Level IV, Level III and Level II entities are
referred to as Micro, Small and Medium size entities (MSMEs). The criteria for classification of Non-
company entities into different levels are given in Annexure 1.

The terms ‘Small and Medium Enterprise’ and ‘SME’ used in Accounting Standards shall be read as
‘Micro, Small and Medium size entity’ and ‘MSME’ respectively.

2. Level I entities are required to comply in full with all the Accounting Standards.

3. Certain exemptions/relaxations have been provided to Level II, Level III and Level IV Non-company
entities. Applicability of Accounting Standards and exemptions/relaxations to such entities are given
in Annexure 2.

4. This Announcement supersedes the earlier Announcement of the ICAI on ‘Harmonisation of
various differences between the Accounting Standards issued by the ICAI and the
Accounting Standards notified by the Central Government’ issued in February 2008, to the
extent it prescribes the criteria for classification of Non-company entities (Non-corporate entities)
and applicability of Accounting Standards to non-company entities, and the Announcement
‘Revision in the criteria for classifying Level II non-corporate entities’ issued in January 2013.

5. This Announcement is not relevant for Non-company entities who may be required to follow Ind AS
as per relevant regulatory requirements applicable to such entities.

6. The changes arising from this Announcement will be incorporated in the Accounting Standards while
publishing the updated Compendium of Accounting Standards.
Annexure 1

Criteria for classification of Non-company Entities as decided by the
Institute of Chartered Accountants of India

Level I Entities

Non-company 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 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 entities engaged in commercial, industrial or business activities, whose turnover (excluding
other income) exceeds rupees two-fifty crore in the immediately preceding accounting year.

(iv) All entities engaged in commercial, industrial or business activities having borrowings
(including public deposits) in excess of rupees fifty crore at any time during the immediately
preceding accounting year.

(v) Holding and subsidiary entities of any one of the above.

Level II Entities

Non-company 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 entities engaged in commercial, industrial or business activities, whose turnover (excluding

other income) exceeds rupees fifty crore but does not exceed rupees two-fifty crore in the

immediately preceding accounting year.

(i) All entities engaged in commercial, industrial or business activities having borrowings

(including public deposits) in excess of rupees tencrore but not in excess of rupees fifty crore

at any time during the immediately preceding accounting year.

(ii) Holding and subsidiary entities of any one of the above.

Level III Entities

Non-company entities which are not covered under Level I and Level II but fall in any one or more of the
following categories are classified as Level III entities:

(i) All entities engaged in commercial, industrial or business activities, whose turnover (excluding

other income) exceeds rupees ten crore but does not exceed rupees fifty crore in the immediately

preceding accounting year.

(i) All entities engaged in commercial, industrial or business activities having borrowings

(including public deposits) in excess of rupees twocrore but does not exceed rupees ten crore

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at any time during the immediately preceding accounting year.

(ii) Holding and subsidiary entities of any one of the above.

Level IV Entities

Non-company entities which are not covered under Level I, Level II and Level III are considered as Level
IV entities.

Additional requirements

(1) An MSME which avails the exemptions or relaxations given to it shall disclose (by way of a note
to its financial statements) the fact that it is an MSME, the Level of MSME and that it has
complied with the Accounting Standards insofar as they are applicable to entities falling in
Level II or Level III or Level IV, as the case may be.

(2) Where an entity, being covered in Level II or Level III or Level IV, had qualified for any exemption
or relaxation previously but no longer qualifies for the relevant exemption or relaxation in the
current accounting period, the relevant standards or requirements become applicable from the
current period and the figures for the corresponding period of the previous accounting period
need not be revised merely by reason of its having ceased to be covered in Level II or Level III
or Level IV, as the case may be. The fact that the entity was covered in Level II or Level III or
Level IV, as the case may be, in the previous period and it had availed of the exemptions or
relaxations available to that Level of entities shall be disclosed in the notes to the financial
statements. The fact that previous period figures have not been revised shall also be
disclosed in the notes to the financial statements.

(3) Where an entity has been covered in Level I and subsequently, ceases to be so covered and gets
covered in Level II or Level III or Level IV, the entity will not qualify for exemption/relaxation
available to that Level, until the entity ceases to be covered in Level I for two consecutive
years. Similar is the case in respect of an entity, which has been covered in Level II or Level
III and subsequently, gets covered under Level III or Level IV.

(4) If an entity covered in Level II or Level III or Level IV opts not to avail of the exemptions or
relaxations available to that Level of entities in respect of any but not all of the Accounting
Standards, it shall disclose the Standard(s) in respect of which it has availed the exemption or
relaxation.

(5) If an entity covered in Level II or Level III or Level IV opts not to avail any one or more of the
exemptions or relaxations available to that Level of entities, it shall comply with the relevant
requirements of the Accounting Standard.

(6) An entity covered in Level II or Level III or Level IV may opt for availing certain exemptions or
relaxations from compliance with the requirements prescribed in an Accounting Standard:

Provided that such a partial exemption or relaxation and disclosure shall not be permitted to
mislead any person or public.

(7) In respect of Accounting Standard (AS) 15, Employee Benefits, exemptions/ relaxations are
available to Level II and Level III entities, under two sub-classifications, viz., (i) entities whose
average number of persons employed during the year is 50 or more, and (ii) entities whose
average number of persons employed during the year is less than 50. The requirements
stated in paragraphs (1) to (6) above, mutatis mutandis, apply to these sub-classifications.
Annexure 2

Applicability of Accounting Standards to Non-company Entities

The Accounting Standards issued by the ICAI, as on April 1, 2020, and such
standards as issued from time-to-time are applicable to Non-company entities
subject to the relaxations and exemptions in the announcement. The Accounting
Standards issued by ICAI as on April 1, 2020, are:

AS 1 Disclosure of Accounting Policies
AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
AS 4 Contingencies and Events Occurring After the Balance Sheet Date
AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
AS 7 Construction Contracts
AS 9 Revenue Recognition
AS 10 Property, Plant and Equipment
AS 11 The Effects of Changes in Foreign Exchange Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Employee Benefits
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting for Taxes on Income
AS 23 Accounting for Investments in Associates in Consolidated Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities and Contingent Assets

(1) Applicability of the Accounting Standards to Level 1 Non- company entities.

Level I entities are required to comply in full with all the Accounting Standards.

(2) Applicability of the Accounting Standards and exemptions/relaxations for Level II,
Level III and Level IV Non-company entities

(A) Accounting Standards applicable to Non-company entities

AS Level II Entities Level III Entities Level IV Entities
Applicable Applicable
AS 1 Applicable Applicable Applicable

AS 2 Applicable Not Applicable Not Applicable
Applicable Applicable
AS 3 Not Applicable
4
AS 4 Applicable
AS 5 Applicable Applicable Applicable
AS 7 Applicable Applicable
AS 9 Applicable Applicable Applicable
AS 10 Applicable Applicable with disclosures
exemption Applicable
AS 11 Applicable Applicable with disclosures
exemption Applicable with
AS 12 Applicable Applicable
AS 13 Applicable Applicable disclosures exemption

AS 14 Applicable Applicable Applicable with

AS 15 Applicable with exemptions Applicable with exemptions disclosures exemption

AS 16 Applicable Applicable Applicable
AS 17 Not Applicable Not Applicable
AS 18 Not Applicable Applicable with
AS 19 Applicable
Applicable with disclosures Applicable with disclosures disclosures exemption
AS 20 exemption exemption
AS 21 Not Applicable Not Applicable
Not Applicable
AS 22 Not Applicable Not Applicable (Refer note 2(C))
(Refer note 2(D)) (Refer note 2(D))
AS 23 Applicable Applicable Applicable with

AS 24 Not Applicable Not Applicable exemptions
AS 25 (Refer note 2(D)) (Refer note 2(D))
Applicable Not Applicable Applicable
AS 26 Not Applicable Not Applicable
(Refer note 2(D)) (Refer note 2(D)) Not Applicable
AS 27 Applicable Applicable
Not Applicable
AS 28 Not Applicable Not Applicable
(Refer notes 2(C) and 2(D)) (Refer notes 2(C) and 2(D)) Applicable with disclosures
AS 29
Applicable with disclosures Applicable with disclosures exemption
exemption exemption
Applicable with disclosures Applicable with disclosures Not Applicable
exemption exemption
Not Applicable

(Refer note 2(D))

Applicable only for current

tax related provisions

(Refer note 2(B)(vi))

Not Applicable

(Refer note 2(D))

Not Applicable

Not Applicable

(Refer note 2(D))

Applicable with

disclosures exemption

Not Applicable

(Refer notes 2(C) and

2(D))

Not Applicable

Applicable with disclosures
exemption

(B) Accounting Standards in respect of which relaxations/exemptions from certain
requirements have been given to Level II, Level III and Level IV Non-company entities:

(i) Accounting Standard (AS) 10, Property, Plant and Equipments

Paragraph 87 relating to encouraged disclosures is not applicable to Level III and Level IV
Non-company entities.

(ii) AS 11, The Effects of Changes in Foreign Exchange Rates (revised 2018)

Paragraph 44 relating to encouraged disclosures is not applicable to Level III and Level IV
Non-company entities.

(iii) AS 13, Accounting for Investments
Paragraph 35(f) relating to disclosures is not applicable to Level IV Non-company entities.

(iv) Accounting Standard (AS) 15, Employee Benefits (revised 2005)

(1) Level II and Level III Non-company entities whose average number of persons employed
during the year is 50 or more are exempted from the applicability of the following
paragraphs:

(a) paragraphs 11 to 16 of the standard to the extent they deal with recognition
and measurement of short-term accumulating compensated absences
which are non-vesting (i.e., short-term accumulating compensated absences
in respect of which employees are not entitled to cash payment for unused
entitlement on leaving);

(b) paragraphs 46 and 139 of the Standard which deal with discounting of
amounts that fall due more than 12 months after the balance sheet date;

(c) recognition and measurement principles laid down in paragraphs 50 to
116 and presentation and disclosure requirements laid down in paragraphs
117 to 123 of the Standard in respect of accounting for defined benefit plans.
However, such entities should actuarially determine and provide for the
accrued liability in respect of defined benefit plans by using the Projected Unit
Credit Method and the discount rate used should be determined by reference
to market yields at the balance sheet date on government bonds as per
paragraph 78 of the Standard. Such entities should disclose actuarial
assumptions as per paragraph 120(l) of the Standard; and

(d) recognition and measurement principles laid down in paragraphs 129 to
131 of the Standard in respect of accounting for other long-term employee
benefits. However, such entities should actuarially determine and provide for
the accrued liability in respect of other long-term employee benefits by using
the Projected Unit Credit Method and the discount rate used should be
determined by reference to market yields at the balance sheet date on
government bonds as per paragraph 78 of the Standard.

(2) Level II and Level III Non-company entities whose average number of persons employed
during the year is less than 50 and Level IV Non-company entities irrespective of
number of employees are exempted from the applicability of the following paragraphs:

(a) paragraphs 11 to 16 of the standard to the extent they deal with recognition
and measurement of short-term accumulating compensated absences
which are non-vesting (i.e., short-term accumulating compensated absences
in respect of which employees are not entitled to cash payment for unused
entitlement on leaving);

(b) paragraphs 46 and 139 of the Standard which deal with discounting of
amounts that fall due more than 12 months after the balance sheet date;

(c) recognition and measurement principles laid down in paragraphs 50 to
116 and presentation and disclosure requirements laid down in paragraphs
117 to 123 of the Standard in respect of accounting for defined benefit plans.
However, such entities may calculate and account for the accrued liability
under the defined benefit plans by reference to some other rational method,

6
e.g., a method based on the assumption that such benefits are payable to all
employees at the end of the accounting year; and

(d) recognition and measurement principles laid down in paragraphs 129 to
131 of the Standard in respect of accounting for other long-term employee
benefits. Such entities may calculate and account for the accrued liability
under the other long-term employee benefits by reference to some other
rational method, e.g., a method based on the assumption that such benefits
are payable to all employees at the end of the accounting year.

(v) AS 19, Leases

(a) Paragraphs 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 Level II Non-company entities.

(b) Paragraphs 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 Non-company
entities.

(c) Paragraphs 22 (c),(e) and (f); 25 (a), (b) and (e); 37 (a), (f) and (g); 38; and 46
(b), (d) and (e) relating to disclosures are not applicable to Level IV Non-
company entities.

(vi) AS 22, Accounting for Taxes on Income

(a) Level IV Non-company entities shall apply the requirements of AS 22, Accounting
for Taxes on Income, for Current tax defined in paragraph 4.4 of AS 22, with
recognition as per paragraph 9, measurement as per paragraph 20 of AS 22, and
presentation and disclosure as per paragraphs 27-28 of AS 22.

(b) Transitional requirements

On the first occasion when a Non-company entity gets classified as Level IV entity,
the accumulated deferred tax asset/liability appearing in the financial statements of
immediate previous accounting period, shall be adjusted against the opening
revenue reserves.

(vii) AS 26, Intangible Assets

Paragraphs 90(d)(iii); 90(d)(iv) and 98 relating to disclosures are not applicable to
Level IV Non-company entities.

(viii) AS 28, Impairment of Assets

(a) Level II and Level III Non-company entities 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 Level II or Level III Non-company
entity 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 entity. Further, such an entity need not disclose the
information required by paragraph 121(g) of the Standard.

(b) Also, paragraphs 121(c)(ii); 121(d)(i); 121(d)(ii) and 123 relating to disclosures are
not applicable to Level III Non-company entities.

(ix) AS 29, Provisions, Contingent Liabilities and Contingent Assets (revised 2016)
Paragraphs 66 and 67 relating to disclosures are not applicable to Level II, Level III
and Level IV Non-company entities.
(C) In case of Level IV Non-company entities, generally there are no such transactions that are
covered under AS 14, Accounting for Amalgamations, or jointly controlled operations or jointly
controlled assets covered under AS 27, Financial Reporting of Interests in Joint Ventures. Therefore,
these standards are not applicable to Level IV Non-company entities. However, if there are any such
transactions, these entities shall apply the requirements of the relevant standard.
(D) 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 requirements relating to Consolidated Financial Statements), and AS 25, Interim Financial
Reporting, do not require a Non-company entity to present consolidated financial statements and
interim financial report, respectively. Relevant AS is applicable only if a Non-company entity is
required or elects to prepare and present consolidated financial statements or interim financial report.

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