09 August 2008
Applicability of Companies (Accounting Standards) Rules 2006 to Small & Medium Sized Companies (SMCs)
Division of enterprises : Companies are divided into two categories viz. SMCs and others for the purposes of complying with Accounting Standards. SMC means a company : (i) whose equity or debt securities are not listed or not in the process of listing on any stock exchange. (ii) which is not a bank, financial institution or an insurance company. (iii) whose turnover (excluding other income) does not exceed Rs.50 crores in the immediately preceding accounting year. (iv) which does not have borrowings (including public deposits) in excess of Rs.10 crores at any time during the immediately preceding accounting year. (v) which is not a holding or subsidiary company of a company, which is not a small and medium-sized company. In other words, Rules are applicable to an SMC if it is subsidiary or holding company of non-SMC (big) company. All the conditions as above are to be satisfied as at the end of the relevant accounting period. An existing company which was not an SMC earlier and becomes SMC later, is not qualified for relaxation in respect of Accounting Standards available to an SMC, until the company stays an SMC for two consecutive accounting periods.
SMC exemptions : Accounting standards which are not mandatory for compliance to SMCs are : Accounting Standard Particulars Remarks AS 3 Cash-flow statements Not required, but SMCs are encouraged to comply with the standards voluntarily. AS 15 Employee benefits AS is applicable to the extent specified and not in its entirety. An SMC, as defined in the Notification, may not apply the disclosure requirements laid down in paragraphs 119 to 123 of the Standard in respect of accounting for defined benefit plans. However, such a company should disclose actuarial assumptions as per paragraph 120(l) of the Standard. AS 17 Segment reporting Not required, but encouraged to comply with the Standards voluntarily. AS 21 Consolidated financial statements If the statement is prepared due to statutory requirement or voluntarily, it should be in accordance with the Standard. AS 23 Accounting for investments in associates in consolidated financial statements If the statement is prepared due to statutory requirement or voluntarily, it should be in accordance with the Standard. AS 25 Interim financial reporting 1. This Standard does not prescribe which enterprises should be required to present interim financial reports. If an enterprise is required or elects to prepare and present an interim financial report, it should comply with this Standard. 2. A statute governing an enterprise or a regulator may require an enterprise to prepare and present certain information at an interim date, which may be different in form and/or content as required by this Standard. In such a case, the recognition and measurement principles as laid down in this Standard are applied in respect of such information, unless otherwise prescribed. 3. The requirements related to cash-flow statement, contained in this Standard are applicable where an enterprise prepares and presents a cash-flow statement for the purpose of its annual financial report. AS 27 Financial reporting of interest in joint ventures This Standard is mandatory in respect of separate financial statements of an enterprise. In respect of consolidated financial statements of an enterprise, this Standard is mandatory in nature where the enterprise prepares and presents the consolidated financial statements.
Applicable to SMCs : Accounting Standards applicable to SMCs also are : Accounting Standard Particulars Remarks AS 1 Disclosure of accounting policies Applicable in its entirety. AS 2 Valuation of inventories Applicable in its entirety. AS 4 Contingencies and events occurring after balance sheet date. Paragraphs that deal with contingencies are applicable only to the extent not covered by AS 29 prescribed by the Central Government. AS 5 Net profit or loss for the period, prior period items and changes in accounting policies Applicable in its entirety. AS 6 Depreciation accounting Applicable in its entirety. AS 7 Construction contracts Applicable in its entirety. AS 9 Revenue recognition Applicable in its entirety. AS 10 Accounting for fixed assets Applicable in its entirety. AS 11 The effects of changes in foreign exchange rates Applicable in its entirety. AS 12 Accounting for Govt. grants Applicable in its entirety. AS 13 Accounting for investments Applicable in its entirety. AS 14 Accounting for amalgamations Applicable in its entirety. AS 16 Borrowing costs Applicable in its entirety. AS 18 Related-party disclosures Applicable subject to materiality. AS 19 Leases Applicable subject to materiality. AS 20 Earnings per share Mandatory to all companies. However, disclosure of diluted earnings per share (both including and excluding extraordinary items) is not mandatory for SMCs. Companies, however, are encouraged to comply with the Standard voluntarily. AS 22 Accounting for taxes on income Applicable in its entirety. AS 24 Discontinuing operations Requirements related to cash-flow statement contained in this Standard are applicable where an enterprise prepares and presents a cash-flow statement voluntarily. AS 26 Intangible assets Applicable in its entirety. If another Accounting Standard deals with a specific type of intangible asset, an enterprise applies that Accounting Standard instead of this Standard. AS 28 Impairment of assets Applicable in its entirety. This Standard should be applied in accounting for the impairment of all assets, other than : (a) inventories (AS 2); (b) assets arising from construction contracts (AS 7); (c) financial assets that are included in the scope of Accounting for Investments (AS 13); and (d) deferred tax assets (AS 22). AS 29 Provisions, contingent liabilities and contingent assets Standard is applicable except paragraphs 66 & 67. All paragraphs of Accounting Standard (AS) 4, contingencies and events occurring after the balance sheet date, that deal with contingencies stand withdrawn, except to the extent they deal with impairment of assets not covered by other Indian Accounting Standards.
Note to be given in financial statements: SMC opting for exemptions/relaxations to disclose by way of note to its financial statements, as under : "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." ***
09 August 2008
In case of Companies AS are mendatory. with effect from 31.10.1998, the Companies (Amendment)Act 1999 has introduced three new sub sections in sec. 211 requiring compliance of accounting Standard by all the companies and disclosure of particulars in case of non compliance. Also a new clause has been inserted in sec. 227 requiring the auditors to state in their report as to whether the annual accounts comply with the AS.
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