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Introduction to Accounting Standards, Types of Entity

Accounting standards are rules for preparing and presenting financial statements consistently and transparently. Learn more about Accounting Standards in detail.

Mridula Sharma6 Jun, 2024

Accounting Standards are like official rules made by experts or government bodies. They cover how financial transactions should be recorded, measured, shown, and explained in financial statements. In this article, CS students will learn more about Accounting Standards for CS Exams.

What Are Accounting Standards?

Accounting standards are a set of guidelines and rules used to ensure consistency, transparency, and accuracy in the financial reporting of businesses and organizations. These standards provide a framework for how financial statements should be prepared and presented, making it easier for stakeholders to understand and compare the financial performance of different entities.

Recognition, Measurement, Presentation, and Disclosure

Accounting standards are like guidelines that show how to handle financial transactions. They explain how to recognize transactions, figure out their financial effect, show them in financial statements, and share important info with stakeholders. Following these steps makes sure that the financial info truly represents what's happening in a business.

List of Accounting Standards by ICAI

List of Accounting Standards by ICAI is given in the table below:

Applicability of Accounting Standards

Accounting standards ensure uniformity, transparency, and reliability in financial reporting across various entities. Here is an overview of the applicability of accounting standards to different types of entities: (a) Sole proprietorship concerns/individuals (b) Partnership firms (c) Societies (d) Trusts (e) Hindu Undivided families (f) Association of Persons (AOP) (g) Body of individuals (BOI) (h) Co-operative societies (i) Companies and LLPs

Types of Entity

There are two main types of entities i.e. corporate and non-corporate. Check the types of entities in the image below:

Corporate Entities

Check the details about Corporate Entities in the table below:

Corporate Entities
Type	Conditions	Applicability of Accounting Standard
Small and Medium Companies (SMCs)	SMCs are companies that satisfy the following conditions: (a) Equity and debt securities of the company are not listed or are not in the process of listing on any stock exchange, whether in India or outside India (b) Company is not a bank or financial institution or insurance company (c) Company’s turnover (excluding other income) does not exceed Rs. 50 crores in the immediately preceding accounting year (d) Company does not have borrowing (including public deposits) exceeding Rs. 10 crores at any time during the immediately preceding accounting year and (e) Company is not a holding company or subsidiary of a non-SMC.	Partial Exemption: Certain relaxations are provided with respect to following Accounting Standard: AS 17 – Segment Reporting AS 15 – Employee Benefits AS 19 – Leases AS 20 – Earnings Per Share (EPS) AS 29 – Provisions, contingent liabilities and contingent assets Full Exemption AS 3 – Cash Flow Statements, shall not apply to SMCs if it is a One Person Company (OPC), dormant company and Small Company
Non-SMCs	Any Other Corporate Entities not falling under SMCs	All the accounting standards are applicable to Non-SMCs.

Non-corporate Entities

Check the details about Corporate Entities in the table below:

Non-Corporate Entities
Level	Conditions	Accounting Standards applicable
Level I	1.Entities whose equity or debt instruments are listed or are in process of listing on any stock exchange (in or outside India) 2.Banks (including co-operative banks), financial institutions or entities carrying on Insurance business 3. All commercial, industrial or business reporting entities having: – Borrowings > 10 crores (at any time during immediately preceding accounting year) – Turnover > 50 crores (during preceding accounting year) l Holding or subsidiary entities of any of the above.	All the accounting standards are applicable to Level I entities. However, AS 21, 23 and 27 will apply based on regulatory requirements.
Level II	Other than Level I entities if they fall under the following limit. All commercial, industrial or business reporting entities having: – Borrowings > 1 crores (at any time during immediately preceding accounting year) – Turnover > 10 crores (during preceding accounting year) Holding or subsidiary entities of any of the above.	Fully applicable AS All accounting standards are applicable to Level II entities except AS 21, 23, 25, 27 and those discussed below.
		AS applicable but certain relaxations regarding disclosure requirement AS 19 – Leases AS 20 – Earning Per Share AS 29 – Provisions, contingent liabilities and contingent assets.
		Accounting standards not applicable AS 3 – Cash Flow Statement AS 17 – Segment Reporting.
Level III	All non-corporate entities other than Level I and Level II.	In addition to partial and full exemption as given in Level II, full exemption with respect to these two are also available: AS 18 – Related Party Disclosures AS 24 – Discontinuing Operations.

International Financial Reporting Standards (IFRS) as Global Standards

IFRS has become the worldwide standard for financial reporting. It helps make financial statements consistent and easy to compare between different countries. Using IFRS makes international trade, investment, and deciding where to put money easier.

Convergence of Accounting Standards with IFRS in India

India has been aligning its accounting standards with IFRS to enhance transparency and facilitate global integration. This convergence process aims to bridge the gap between Indian Generally Accepted Accounting Principles (GAAP) and international standards.

List of IFRS and Indian Accounting Standards (Ind AS)

The following are the list of IFRS and Indian Accounting Standards (Ind AS):

IFRS 1-First time Adoption of International Financial Reporting Standards
IFRS 2-Share Based Payments
IFRS 3-Business Combinations
IFRS 4-Insurance Contracts
IFRS 5-Non-current Assets Held for Sale and Discontinued operations
IFRS 6-Exploration for and Evaluation of Mineral Resources
IFRS 7-Financial Instruments: Disclosures
IFRS 8-Operating Segments
IFRS 9-Financial Instruments
IFRS 10-Consolidated Financial Statements
IFRS 11-Joint Arrangements
IFRS 12-Disclosure of Interests in other Entities
IFRS 13-Fair Value Measurement
IFRS 14-Regulatory Deferral Accounts
IFRS 15-Revenue from Contracts with Customers
IFRS 16-Leases
IAS-1-Presentation of Financial Statements
IAS-2- Inventories
IAS-7- Statement of Cash Flows
IAS-8- Accounting Policies, Change in Accounting estimates and Errors
IAS-10- Events after balance sheet date
IAS-12- Income Taxes
IAS-16-Property, Plant and Equipments
IAS-19- Employee Benefits
IAs-20-Accounting for Govt. Grant and Disclosure of Govt. Assistance
IAS-21- The Effect of Changes in Forex Rates
IAS-23-BorrowingCosts
IAS-24- Related Party Disclosures
IAS-26- Accounting and reporting by retirement benefit plans
IAS-27- Separate Financial Statements
IAS-28- Investment in Associates and Joint Ventures
IAS-29- Financial Reporting in Hyper inflationary Conditions
IAS-32- Financial Instruments- Presentation
IAS-33- Earnings Per Share
IAS-34- Interim Financial Reporting
IAS-36- Impairment of Assets
IAS-37- Provisions, Contingent Liabilities and Contingent Assets
IAS-38- Intangible Assets
IAS-40-Investment Property
IAS-41-Agriculture

IFRS vs. Indian GAAP

Comparing IFRS with Indian GAAP highlights the differences in accounting principles, treatment of transactions, and disclosure requirements. Understanding these variances is crucial for businesses transitioning to Ind AS and complying with global reporting standards.

Comparison of Indian GAAP and Ind AS

A comprehensive comparison between Indian GAAP and Ind AS elucidates the changes in accounting treatments, financial statement presentation, and disclosure requirements. This analysis aids businesses in navigating the transition smoothly.

Also Check:
Introduction to Accounting	Capital Structure
Law relating to Civil Procedure	Right To Information Act, 2005
Law relating to Limitation	Law relating to Evidence

Accounting Standards FAQs

What are accounting standards?

Accounting standards are a set of guidelines and rules used to ensure consistency, transparency, and accuracy in the financial reporting of businesses and organizations.

Why are accounting standards important for businesses?

Accounting standards ensure that financial statements are consistent and comparable, which helps stakeholders make informed decisions, enhances transparency, and maintains reliability in financial reporting.

Do sole proprietorships and partnerships need to follow accounting standards?

Sole proprietorships and partnerships are generally not required to follow mandatory accounting standards, but adhering to basic accounting principles is recommended for accurate financial reporting and tax purposes.

How do accounting standards apply to companies and LLPs?

Companies and LLPs must follow mandatory accounting standards, such as IFRS or local GAAP, to ensure compliance with regulatory requirements and provide transparent financial information to stakeholders.

What is the difference between Indian GAAP and Ind AS?

Indian GAAP and Ind AS differ in accounting principles, treatment of transactions, and disclosure requirements. Ind AS is aligned with IFRS, aiming to bring Indian financial reporting in line with global standards.

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What Are Accounting Standards?

Recognition, Measurement, Presentation, and Disclosure

List of Accounting Standards by ICAI

List of Accounting Standards by ICAI is given in the table below:

Applicability of Accounting Standards

Types of Entity

There are two main types of entities i.e. corporate and non-corporate. Check the types of entities in the image below:

Corporate Entities

Check the details about Corporate Entities in the table below:

Corporate Entities
Type	Conditions	Applicability of Accounting Standard
Small and Medium Companies (SMCs)	SMCs are companies that satisfy the following conditions: (a) Equity and debt securities of the company are not listed or are not in the process of listing on any stock exchange, whether in India or outside India (b) Company is not a bank or financial institution or insurance company (c) Company’s turnover (excluding other income) does not exceed Rs. 50 crores in the immediately preceding accounting year (d) Company does not have borrowing (including public deposits) exceeding Rs. 10 crores at any time during the immediately preceding accounting year and (e) Company is not a holding company or subsidiary of a non-SMC.	Partial Exemption: Certain relaxations are provided with respect to following Accounting Standard: AS 17 – Segment Reporting AS 15 – Employee Benefits AS 19 – Leases AS 20 – Earnings Per Share (EPS) AS 29 – Provisions, contingent liabilities and contingent assets Full Exemption AS 3 – Cash Flow Statements, shall not apply to SMCs if it is a One Person Company (OPC), dormant company and Small Company
Non-SMCs	Any Other Corporate Entities not falling under SMCs	All the accounting standards are applicable to Non-SMCs.

Non-corporate Entities

Check the details about Corporate Entities in the table below:

Non-Corporate Entities
Level	Conditions	Accounting Standards applicable
Level I	1.Entities whose equity or debt instruments are listed or are in process of listing on any stock exchange (in or outside India) 2.Banks (including co-operative banks), financial institutions or entities carrying on Insurance business 3. All commercial, industrial or business reporting entities having: – Borrowings > 10 crores (at any time during immediately preceding accounting year) – Turnover > 50 crores (during preceding accounting year) l Holding or subsidiary entities of any of the above.	All the accounting standards are applicable to Level I entities. However, AS 21, 23 and 27 will apply based on regulatory requirements.
Level II	Other than Level I entities if they fall under the following limit. All commercial, industrial or business reporting entities having: – Borrowings > 1 crores (at any time during immediately preceding accounting year) – Turnover > 10 crores (during preceding accounting year) Holding or subsidiary entities of any of the above.	Fully applicable AS All accounting standards are applicable to Level II entities except AS 21, 23, 25, 27 and those discussed below.
		AS applicable but certain relaxations regarding disclosure requirement AS 19 – Leases AS 20 – Earning Per Share AS 29 – Provisions, contingent liabilities and contingent assets.
		Accounting standards not applicable AS 3 – Cash Flow Statement AS 17 – Segment Reporting.
Level III	All non-corporate entities other than Level I and Level II.	In addition to partial and full exemption as given in Level II, full exemption with respect to these two are also available: AS 18 – Related Party Disclosures AS 24 – Discontinuing Operations.

International Financial Reporting Standards (IFRS) as Global Standards

Convergence of Accounting Standards with IFRS in India

List of IFRS and Indian Accounting Standards (Ind AS)

The following are the list of IFRS and Indian Accounting Standards (Ind AS):

IFRS 1-First time Adoption of International Financial Reporting Standards
IFRS 2-Share Based Payments
IFRS 3-Business Combinations
IFRS 4-Insurance Contracts
IFRS 5-Non-current Assets Held for Sale and Discontinued operations
IFRS 6-Exploration for and Evaluation of Mineral Resources
IFRS 7-Financial Instruments: Disclosures
IFRS 8-Operating Segments
IFRS 9-Financial Instruments
IFRS 10-Consolidated Financial Statements
IFRS 11-Joint Arrangements
IFRS 12-Disclosure of Interests in other Entities
IFRS 13-Fair Value Measurement
IFRS 14-Regulatory Deferral Accounts
IFRS 15-Revenue from Contracts with Customers
IFRS 16-Leases
IAS-1-Presentation of Financial Statements
IAS-2- Inventories
IAS-7- Statement of Cash Flows
IAS-8- Accounting Policies, Change in Accounting estimates and Errors
IAS-10- Events after balance sheet date
IAS-12- Income Taxes
IAS-16-Property, Plant and Equipments
IAS-19- Employee Benefits
IAs-20-Accounting for Govt. Grant and Disclosure of Govt. Assistance
IAS-21- The Effect of Changes in Forex Rates
IAS-23-BorrowingCosts
IAS-24- Related Party Disclosures
IAS-26- Accounting and reporting by retirement benefit plans
IAS-27- Separate Financial Statements
IAS-28- Investment in Associates and Joint Ventures
IAS-29- Financial Reporting in Hyper inflationary Conditions
IAS-32- Financial Instruments- Presentation
IAS-33- Earnings Per Share
IAS-34- Interim Financial Reporting
IAS-36- Impairment of Assets
IAS-37- Provisions, Contingent Liabilities and Contingent Assets
IAS-38- Intangible Assets
IAS-40-Investment Property
IAS-41-Agriculture

IFRS vs. Indian GAAP

Comparison of Indian GAAP and Ind AS

Also Check:
Introduction to Accounting	Capital Structure
Law relating to Civil Procedure	Right To Information Act, 2005
Law relating to Limitation	Law relating to Evidence