Applicability of Accounting Standards in respect of period commencing on or after 7th December 2006
In exercise of the powers conferred by clause (a) of sub-section (1) of section 642 of the Companies Act, 1956 (1 of 1956), read with sub-section (3C) of Section 211 and sub-section (1) of Section 210A of the said Act, the Central Government, in consultation with National Advisory Committee on Accounting Standards has made Companies (Accounting Standards) Rules, 2006. According to these rules every company is required to comply with said rules in respect of accounting period commencing on or after 7th December 2006. These rules divide the companies into two divisions:
a. Small and Medium size companies (SMC) and
b. Non Small and Medium size companies (Non SMC)
Small and Medium sized company means a company
1. whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India;
2. which is not a bank, financial institution or an insurance company;
3. whose turnover (excluding other income) does not exceed rupees fifty crore in the immediately preceding accounting year;
4. which does not have borrowings (including public deposits) in excess of rupees ten crore at any time during the immediately preceding accounting year; and
5. which is not a holding or subsidiary company of a company which is not a small and medium-sized company
A company shall qualify as a Small and Medium Sized Company, if the conditions mentioned therein are satisfied as at the end of the relevant accounting period.
An existing company, which was previously not a Small and Medium Sized Company (SMC) and subsequently becomes an SMC, shall not be qualified for exemption or relaxation in respect of Accounting Standards available to an SMC until the company remains an SMC for two consecutive accounting periods.
SMCs shall follow the following instructions while complying with Accounting Standards under these rules:-
The SMC which does not disclose certain information pursuant to the exemptions or relaxations given to it shall disclose (by way of a note to its financial statements) the fact that it is an SMC and has complied with the Accounting Standards insofar as they are applicable to an SMC on the following lines:
“The Company is a Small and Medium Sized Company (SMC) as defined in the General Instructions in respect of Accounting Standards notified under the Companies Act, 1956. Accordingly, the Company has complied with the Accounting Standards as applicable to a Small and Medium Sized Company.”
Where a company, being a SMC, has 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 an SMC. The fact that the company was an SMC in the previous period and it had availed of the exemptions or relaxations available to SMCs shall be disclosed in the notes to the financial statements.
If an SMC opts not to avail of the exemptions or relaxations available to an SMC 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.
If an SMC desires to disclose the information not required to be disclosed pursuant to the exemptions or relaxations available to the SMCs, it shall disclose that information in compliance with the relevant accounting standard.
The SMC 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.
The following are the major differences between the Notified AS under the Companies Act, 1956 and the AS, as issued by the ICAI:
· The relevant Accounting Standard Interpretations issued by the ICAI have been incorporated in the notified AS itself except ASI 12, ASI I23, ASI I27 and ASI I29.
· Notified AS had two levels of classification of companies being a Small and Medium Companies (SMC) and other than SMCs. The AS issued by the ICAI had three levels being Level 1, Level 2 and Level 3 enterprises.
· AS 18 is entirely applicable and mandatory to Level 1 enterprise and not applicable to Level 2 and Level 3 enterprises.
· The some of the requirements contained in the Preface to the AS issued by the ICAI have been incorporated as General Instructions in the rules containing the Notified AS.
· The ICAI from time to time issued notifications on amendments to the AS. Most of the amendments made by the ICAI have been incorporated as paragraph insertions / deletions in the Notified AS itself.
For non corporate entities, accounting standards as issued by the Institute of Chartered Accountants of India will continue to become applicable.
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