The Institute of Chartered Accountants of India (ICAI), in its 433rd meeting, has introduced significant changes to the classification criteria for Non-company entities regarding the applicability of Accounting Standards, effective April 1, 2024.

🔍 Key Revisions to Know:

1. Classification Framework:
• Entities are now categorized into two groups: MSME and Large entities
• Simplified structure for better compliance and understanding

2. MSME Classification Criteria:
An entity qualifies as MSME if ALL these conditions are met:
• No listing of equity or debt securities on any stock exchange (Indian or international)
• Not a bank, financial institution, or insurance company
• Annual turnover ≤ ₹250 crore (excluding other income) during the immediately preceding accounting year
• Borrowings ≤ ₹50 crore at any time during the immediately preceding accounting year
• Not a holding or subsidiary of any entity that isn’t an MSME

3. Important Compliance Notes:
• Large entities must comply with all Accounting Standards
• MSMEs enjoy certain exemptions/relaxations (will discuss later in another post)
• The terms ‘Small and Medium Enterprise’ and ‘SME’ are now replaced with ‘MSME’

4. Additional Requirements:
• MSMEs must disclose their status and applicable exemptions in financial statements
• Entities transitioning between MSME and Large categories must maintain status for two consecutive years
• Partial exemption options available with appropriate disclosures

💡 Why This Matters:
This revision streamlines financial reporting requirements and provides clarity for non-company entities, potentially reducing compliance burden while maintaining reporting quality.

📌 Action Points for Professionals:
1. Review your entity’s classification under new criteria
2. Assess applicable exemptions and relaxations
3. Plan for necessary changes in accounting practices
4. Update disclosure requirements in financial statements

This announcement supersedes the previous criteria issued in March 2021. For detailed information, visit the ICAI website.

💪 Whether you’re an MSME or a Large entity, staying ahead of these changes isn’t just good practice – it’s good business.