ICAI Releases Draft Guidance Note on Financial Statements of Non Corporate Entities
The Institute of Chartered Accountants of India (ICAI) has released a draft Guidance Note on ‘Financial Statements of Non Corporate Entities (NCEs)’ for stakeholders to provide their feedback by March 8, 2023. The aim of the proposed guidance note is to ensure that the financial statements of non-corporate entities (NCEs) are presented in prescribed formats to standardize and enhance the quality of their financial reporting.
In June 2022, ICAI released a Technical Guide on ‘Financial Statements of Non Corporate Entities (NCEs)’ to address the applicability of Accounting Standards and provide recommended formats for their financial statements. The Technical Guide was intended to ensure the consistent and effective application of the accounting standards, which would help to standardize and strengthen the financial reporting system of NCEs. The Guide also explained the prescribed formats of the financial statements applicable to these entities, such as sole proprietorship firms, partnership firms, trusts, Hindu Undivided Families (HUFs), association of persons (AOPs), and co-operative societies.
It is important to note that entities other than incorporated entities, such as companies under the Companies Act, 2013, and Limited Liability Partnerships (LLPs) under the LLP Act, 2008, are treated as non-corporate or non-company entities (NCEs). LLPs are considered corporate entities and, therefore, are not covered under the scope of this Technical Guide. ICAI’s Technical Guide on ‘Financial Statements of Non Corporate Entities (NCEs)’ provides recommended/ illustrative formats of financial statements applicable for non-corporate entities, such as proprietorships, partnership firms, etc., to guide and assist stakeholders.
ICAI has already issued the required Accounting Standards for compliance by NCEs, and the institute has also prescribed a scheme for classifying NCEs into four levels: Level I (large size NCEs), Level II, III & IV (Micro, Medium, and Small NCEs), with certain exemptions/relaxations for non-company entities falling in Micro, Medium, and Small sized classification. ICAI’s Technical Guide on ‘Financial Statements of Non Corporate Entities (NCEs)’ was released in June 2022 and was aimed at providing guidance to stakeholders on the formats of financial statements applicable for NCEs.