Applicability of accounting standards

AS 3845 views 3 replies

Nitin Singhal

Gaining knowledge...

320 Points Joined September 2009

My first Question is What does Commercial, Industrial and Business Reporting means in context of Accounting Standards?

Paragraph 3 to Preface says:

"...Accounting Standards apply in respect of any enterprise (whether organised in corporate, co-operative1 or other forms) engaged in commercial, industrial or business activities, irrespective of whether it is profit oriented or it is established for charitable or religious purposes. Accounting Standards will not, however, apply to enterprises only carrying on the activities which are not of commercial, industrial or business nature, (e.g., an activity of collecting donations and giving them to flood affected people)...."

If I am a sole proprietor having 100 crores turnover doing business from my capital only (i.e. no loans of any kind). Will I have to follow Accounting Standards as I am doing commercial activity? But AS says it is applicable on Reporting Enterprises. As I am Sole proprietor and have no loans I do not report to anybody.

Replies (3)

Max Payne

employed

2574 Points Joined May 2008

Yes you have to follow accounting standards.

ICAI requires its members to ensure compliance with applicable accounting standards when they perform any attest function.

Since your turnover is Rs.100 crore, you have to get your books audited under the Income Tax Act by a CA.

That means the CA has to check if you follow applicable AS, including ASIT 1 and ASIT 2 for tax audits.

Moreover, reporting enterprise does not mean you are answerable to someone,

it means you are reporting your financial results to someone, including owner of the business.

Exclusion from AS is only if the business is wholly non-commercial.

Even if activity is partly commercial or partly business or partly industrial, then you have to follow AS for all activities being reported by the enterprise.

This is also subject to statutory requirements, like under the (companies act or) Income Tax Act.

SO YES, FOLLOW AS.

Nitin Singhal

Gaining knowledge...

320 Points Joined September 2009

@ g.k. : If my turnover is below 60 lacs then in that case I do not need Tax Audit. In that case, would I have to follow AS? Because AS that are applicable to level III are still applicable to me. But in this case there is no one to verify if I am following AS or not. And also I am not reporting to anybody except myself so can I prepare Fin. Statements according to my convenience i.e. without AS.

Max Payne

employed

2574 Points Joined May 2008

From tax angle, you need not follow AS.

You just have to follow a regular method of accounting. You only have to comply with ASIT 1 and ASIT 2 if you are following Mercantile system of accounting (accrual basis).

For cash basis accounting, you need not follow those AS also.

But i suggest that u follow AS in preparing financial statements, in case you have to produce accounts before someone else for some reason like Bank Loan or CA certification for Visa purposes.

Regards.