Conflict between accounting standards and provision of the c

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Mitesh (Querist)
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18 August 2017 Hello Respected Members,

I want one clarification on the below mention situation

I have one private limited company having Turnover less than Rs. 50 Cr. and borrowings also less than Rs. 10 Cr. i.e it is treated as Small & Medium sized company.

So, according to Small & Medium Sized company (SMC) as defined in clause 2(f) of the companies (Accounting Standards) Rules, 2006 there is relaxation for applicability of AS - 3 & AS - 17.

However, as per provision of section 129 of the companies Act, 2013 Financial Statements shall comply with Accounting Standards notified u/s - 133

So, my question is whether AS-3 will be applicable or not?? and who shall prevail over which i.e where there is conflict between Accounting Standard and provision of companies act, whom to give preference.

Please provide the solution in above matter

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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20 July 2024 In the scenario you've described, where there seems to be a conflict between the provisions of Accounting Standards (AS) and the Companies Act, 2013, here’s how it generally works:

### Understanding the Situation:

1. **Small & Medium Sized Company (SMC) Status**:
- Your private limited company qualifies as a Small & Medium Sized Company (SMC) under the Companies Act, 2013 because its turnover is less than Rs. 50 crore and borrowings are less than Rs. 10 crore.
- SMCs are provided certain relaxations from compliance with certain Accounting Standards under the Companies (Accounting Standards) Rules, 2006.

2. **Provisions of Section 129 of Companies Act, 2013**:
- Section 129 mandates that the financial statements of a company shall comply with Accounting Standards notified under Section 133 of the Companies Act, 2013.

### Conflict Resolution:

When there is a conflict between the provisions of Accounting Standards and the Companies Act, typically the Companies Act takes precedence. Here’s why:

- **Hierarchy of Laws**: The Companies Act, being a primary legislation, governs the functioning and reporting requirements of companies in India. It sets out the framework within which companies must operate and prepare their financial statements.

- **Compliance Mandate**: Section 129 of the Companies Act, 2013 specifically mandates compliance with Accounting Standards notified under Section 133. This requirement applies universally to all companies, including SMCs.

- **Relaxations for SMCs**: While SMCs may be exempted from certain specific Accounting Standards under the Companies (Accounting Standards) Rules, 2006, this exemption is within the framework provided by the Companies Act itself. It does not override the general requirement to comply with other applicable Accounting Standards.

### Conclusion:

Therefore, in your case:

- **AS-3 (Cash Flow Statements)**: Even though SMCs may be exempted from AS-3 under the SMC rules, the mandate under Section 129 of the Companies Act, 2013 still applies. Hence, AS-3 would be applicable to your company because it is required under Section 129 of the Companies Act, 2013.

- **Hierarchy**: In case of any conflict between specific provisions of Accounting Standards and the Companies Act, the Companies Act provisions prevail.

### Practical Approach:

- Ensure your company's financial statements comply with all applicable Accounting Standards as notified under Section 133 of the Companies Act, 2013.
- Check for any specific relaxations or exemptions provided under the SMC rules and apply them accordingly, while ensuring overall compliance with the Companies Act.

In summary, while your company benefits from certain exemptions as an SMC, the requirement to comply with AS-3 (and other relevant Accounting Standards) remains intact due to the overriding mandate of the Companies Act, 2013.

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