Introduction
The Institute of Chartered Accountants of India (ICAI), through its Accounting Standards Board (ASB), has played a key role in strengthening India’s financial reporting framework. Accounting Standards issued by ICAI provide recognition, measurement, presentation, and disclosure requirements for financial statements.
For non-corporate entities (NCEs), while recognition and measurement principles were applicable, no uniform financial statement formats were prescribed earlier. To address this gap, ICAI issued a Technical Guide in June 2022, followed by a comprehensive Guidance Note on Financial Statements of Non-Corporate Entities in August 2023.
This Guidance Note prescribes authoritative guidance, illustrative formats, and disclosure requirements for NCEs. It becomes mandatory for financial periods beginning on or after April 1, 2024 (FY 2024–25 onwards).
Who Are Non-Corporate Entities (NCEs)?
As per ICAI, Non-Corporate Entities include all business or professional organizations other than:
- Companies incorporated under the Companies Act, 2013
- Limited Liability Partnerships (LLPs) under the LLP Act
Examples of NCEs
- Sole proprietorships
- Hindu Undivided Families (HUFs)
- Partnership firms (registered and unregistered)
- Societies registered under law
- Trusts (private or public, registered or unregistered)
- Statutory corporations, autonomous bodies, and authorities
- Any organization engaged in business or professional activities outside company/LLP form
Objective and Scope of the Guidance Note
The primary objective of this Guidance Note is to:
- Standardize formats of financial statements of NCEs
- Enhance the quality, reliability, and comparability of financial reporting
- Ensure effective application of Accounting Standards (AS/Ind AS)
- Provide uniform disclosure requirements for stakeholders
This Guidance Note is relevant unless a regulator or law prescribes its own format (e.g., Maharashtra Public Trust Rules, 1951 for Trusts).
Implementation Timeline
- June 2022 – Technical Guide on Financial Statements of NCEs (recommendatory)
- August 2023 – Guidance Note issued (mandatory)
- April 1, 2024 – Effective date (for FY 2024–25 onwards)
From April 2024, all NCEs must prepare their Balance Sheet and Statement of Profit & Loss in line with this Guidance Note.
Key Features of the Guidance Note
1. Financial Statements Covered
- Balance Sheet
- Statement of Profit & Loss
- Related Notes
- General Instructions for disclosure and presentation
2. General Instructions
- Applicable Accounting Standards and statutes override formats
- Additional disclosures required beyond AS requirements
- Items on Balance Sheet & P&L must be cross-referenced to Notes
- Avoid both over-disclosure and under-disclosure
- Comparative figures for the previous year must be shown
- Consistency in unit of measurement (lakhs/crores)
3. Rounding Off Rules
Based on Total Income of NCE:
- Less than ₹100 crore → nearest hundreds, thousands, lakhs, or millions
- More than ₹100 crore → nearest lakhs, millions, or crores
Formats Prescribed
Balance Sheet Format (Key Headings)
- Equity & Liabilities
- Owners’ Funds (Capital, Reserves, Surplus)
- Non-current Liabilities (Long-term borrowings, provisions, deferred tax)
- Current Liabilities (Trade payables, short-term borrowings, other liabilities)
- Assets
- Non-current Assets (Property, Plant & Equipment, Intangible Assets, Investments, Loans & Advances)
- Current Assets (Cash, Inventories, Receivables, Current Investments)
Statement of Profit & Loss Format
- Revenue from operations
- Other Income
- Total Income
- Expenses (COGS, Employee Benefits, Finance Costs, Depreciation, Other Expenses)
- Profit before tax and remuneration
- Partner’s Remuneration (if partnership firm)
- Tax Expense (Current & Deferred)
- Net Profit/Loss
What Is Not Included in the Formats?
The prescribed formats do not cover:
- Period/amount of loan defaults
- Loans/advances to owners or officers
- Repatriation restrictions on bank balances
- Commitments (capital expenditure contracts)
- Auditor’s Remuneration
- Ageing analysis
- Ratio analysis
- Additional regulatory information
These may still be required by auditors or regulators separately.
Classification of Entities for Compliance
1. Micro, Small and Medium Entities (MSMEs)
Conditions:
- Turnover (excluding other income) < ₹250 crore in preceding year
- Borrowings ≤ ₹50 crore at any time in preceding year
- Not listed (equity or debt) and not in process of listing
- Not a bank/insurance/financial institution
- Not a holding or subsidiary of a non-MSME
2. Large Entities
Entities not qualifying as MSMEs must follow full compliance with all Accounting Standards (AS).
Accounting Standards Compliance
For MSMEs (relaxations allowed)
- AS 3 (Cash Flow) – Not applicable
- AS 15 (Employee Benefits) – No actuarial valuation required
- AS 17 (Segment Reporting) – Not applicable
- AS 19 (Leases) – Limited disclosures
- AS 20 (EPS) – Not applicable
- AS 22 (Taxes on Income) – Only current tax, deferred tax exempt
- AS 24 (Discontinuing Operations) – Not applicable
- AS 28 (Impairment) – Simplified valuation methods allowed
- AS 18 (Related Party) – Exemption if turnover ≤ ₹50 cr & borrowings ≤ ₹10 cr
For Large Entities
- Full compliance with all Accounting Standards (AS) is mandatory
Transitional Requirements for AS 22 (Taxes on Income)
- On first adoption of exemption, accumulated deferred tax asset/liability from the previous year must be adjusted against opening reserves/owner’s funds.
Auditor’s Role & Non-Compliance
If an NCE does not comply with the Guidance Note, auditors must issue a qualified opinion in their report. Example wording:
“The financial statements of [Entity] have not been prepared in accordance with the formats prescribed in the Guidance Note on Financial Statements of NCEs issued by ICAI. This represents a departure from the prescribed presentation framework.”
Conclusion
The Guidance Note on Financial Statements of NCEs (2023) marks a major reform in financial reporting for non-corporate entities in India. Effective from FY 2024–25, all NCEs must adopt the prescribed formats, disclosure requirements, and classification norms.
This will ensure:
- Better transparency
- Improved comparability across entities
- Stronger stakeholder confidence in financial reporting
Non-corporate entities, auditors, and accountants must gear up for this transition to maintain compliance with ICAI’s revised standards.
