Financial Statements of Non-Corporate Entities – An Overview

The ICAI issued an Implementation Guide in 2022 to provide standardized formats for preparation and presentation of financial statements of Non-Corporate Entities (NCEs).
The objective was to enhance quality, understandability, reliability, consistency, and comparability of financial reporting.
The recommended formats are applicable from FY 2024–25 (voluntary for now; details given later).

1. What Are Non-Corporate Entities (NCEs)?

All business entities other than companies registered under the Companies Act, 2013 and LLPs registered under the LLP Act, 2008 are considered Non-Corporate Entities.

Common forms include:

1. Sole proprietorships

2. Hindu Undivided Families (HUFs)

3. Partnership firms

4. Association of Persons (AOPs)

5. Societies registered under any law

6. Trusts registered under any law

7. Statutory corporations and autonomous bodies

2. Applicability of the Guidance Note

The Guidance Note is applicable except in the following cases:

a) Where specific formats/principles are prescribed by a regulator, authority, or statute
b) Autonomous bodies of the Government of India having their own formats
c) Political parties, educational institutions, and non-profit organisations (NPOs)

The Guidance Note provides recommended formats for all categories of NCEs to which it applies.

Clarification on Compliance

Although recommendatory in nature, ICAI has clarified that:

• If the formats are not followed,

• Auditors should consider the circumstances and

• Report the non-compliance in the audit report, if necessary.

3. Applicability of Accounting Standards to NCEs

The revised criteria for applicability of Accounting Standards (AS) to NCEs became effective for accounting periods beginning 1 April 2020, and later ICAI further refined the classification.

NCEs are now divided into:

A. Micro, Small and Medium-Sized Entities (MSME)

An entity is an MSME if:

i. Its equity or debt securities are not listed
ii. It is not a bank, financial institution, or insurance company
iii. Turnover (excluding other income) does not exceed ₹250 crore
iv. Borrowings do not exceed ₹50 crore at any time during the preceding year
v. It is not a holding or subsidiary of a non-MSME entity

B. Large Entities

Any NCE that does not satisfy MSME criteria is classified as a Large Entity.

Terminology Alignment

• Large Entities = Level I entities

• MSME entities = Level II, III, and IV entities

Compliance Requirements

• Large Entities must comply fully with all applicable Accounting Standards.

• MSME Entities get several exemptions and relaxations, listed in Annexure 1 of the Guidance Note.

4. Accounting Standards Not Applicable to MSME Entities

The following AS are not applicable to MSMEs:

a) AS 3 – Cash Flow Statements
b) AS 17 – Segment Reporting
c) AS 20 – Earnings Per Share
d) AS 24 – Discontinuing Operations
e) AS 18 – Related Party Disclosures
f) AS 28 – Impairment of Assets

5. Non-Profit Organisations (NPOs)

ICAI has issued a Technical Guide on Accounting for NPOs that:

• Recommends accounting principles aligned with Indian GAAP

• Provides formats for preparation and presentation of NPO financial statements

• Considers unique stakeholder requirements

Applicability of Accounting Standards to NPOs

• AS do not apply if no part of the NPO’s activities is commercial, industrial, or business in nature.

• If even a very small portion is commercial, the relevant AS may apply.

6. Relaxation for FY 2024–25

Originally, the Guidance Note for NCEs and the Guidance Note for LLP Financial Statements were both effective for periods beginning 1 April 2024.

However, considering practical challenges, ICAI has announced:

🔹 Compliance with the Guidance Note is voluntary for FY 2024–25.

🔹 There is no change in applicability of Accounting Standards or the financial reporting framework.

Thus, entities may choose to adopt the new formats early but are not mandated to follow them for FY 2024–25.