Applicability, Exemptions and Relaxations under Accounting Standards

Accounting Standards (AS) are issued to ensure consistency, transparency, and comparability in financial reporting. However, applying the same level of compliance to every entity is neither practical nor cost-effective. Therefore, ICAI provides specific exemptions and relaxations based on the size and nature of the entity.

This article explains Accounting Standard-wise applicability, exemptions, and relaxations for:

Companies (SMC and Non-SMC)
Non-corporate entities (Level I to Level IV)

1. Basic Classification for Applicability of Accounting Standards

For the purpose of applicability, entities are broadly classified into:

Companies
Other than Companies (Non-corporate entities)

2. Applicability of Accounting Standards to Companies

Companies are classified into two categories:

Small and Medium Sized Companies (SMC)
Non-SMC Companies

3. Meaning of Small and Medium Sized Company (SMC)

A company is classified as an SMC only if it satisfies all of the following conditions:

The company is not listed on any stock exchange
The company is not in the process of listing
The company is not a bank, insurance company, or financial institution
Turnover (excluding other income) does not exceed ₹250 crore in the previous financial year
Borrowings do not exceed ₹50 crore in the previous financial year
The company is not a holding or subsidiary of a Non-SMC

Failure to satisfy any one condition results in the company being treated as a Non-SMC.

4. Accounting Standards Applicable to SMC

Fully Exempt Accounting Standard

AS No.	Accounting Standard
AS 17	Segment Reporting

SMCs are completely exempt from the application of AS 17.

Accounting Standards with Relaxations for SMC

SMCs are required to apply the following Accounting Standards with reduced disclosure requirements:

AS 3 – Cash Flow Statements
AS 18 – Related Party Disclosures
AS 19 – Leases
AS 20 – Earnings Per Share
AS 24 – Discontinued Operations
AS 28 – Impairment of Assets
AS 29 – Provisions, Contingent Liabilities and Contingent Assets

5. Applicability of Accounting Standards to Other than Companies

Entities other than companies include: Partnership firms, LLPs, Sole proprietorships, HUFs, and Trusts/Societies. These are classified into four levels:

6. Classification of Non-Corporate Entities

Level	Turnover (₹)	Borrowings (₹)
Level I	More than 250 crore	More than 50 crore
Level II	50 to 250 crore	10 to 50 crore
Level III	10 to 50 crore	2 to 10 crore
Level IV	Up to 10 crore	Up to 2 crore

7. Accounting Standards Applicable – Level Wise

Level I: Fully Applicable (No Exemptions)

Level II:

Fully Exempt: AS 3, 17, 18, 24
Relaxations: AS 19, 20, 28, 29

Level III & IV:

Fully Exempt: AS 3, 17, 18, 24, 28, 29
Relaxations: AS 19, 20

8. Holding and Subsidiary Rule

If an entity is a holding or subsidiary of a higher-level entity, it will be classified into the same higher level, irrespective of its own turnover or borrowings.

9. Charitable and Religious Organisations

Nature of Activity	Applicability of Accounting Standards
Entirely charitable activities	Accounting Standards not applicable
Any commercial activity	All Accounting Standards applicable

Conclusion

The applicability of Accounting Standards depends on the nature, size, and structure of the entity. ICAI follows a balanced approach by ensuring high transparency for large entities and reduced compliance burden for smaller entities. Correct identification of the entity category is essential to determine the extent of compliance required.