Accounting Standards Now Applicable to Non-Profits Trusts and Societies

The not-for-profit sector in India operates within a fast paced regulatory landscape shaped by various laws, notifications, and announcements issued by multiple governing bodies. Ensuring compliance with these regulations is essential for organizations to function effectively and maintain transparency.

This article decrypts a guidance note (https://www.icai.org/post/15771) issued by the Institute of Chartered Accountants of India (ICAI) under which Accounting Standards prescribed by the ICAI shall henceforth be applicable to “financial statements of non-corporate entities” with effect from 1st Apr 2024. i.e. Financial statements beginning from  1st Apr 2024 to 31st Mar 2025. This means that non-profits trusts and societies must adopt the ICAI’s accounting standards for this financial year 2024 – 25. The ICAI’s accounting standards are already applicable to Section 8 companies. The guidance note also proposes the format of Financial Statements in accordance with the Accounting Standards.

A key reason to extend the applicability of ICAI’s accounting standards to non-corporate entities i.e Trusts, Societies, Hindu Undivided Families, etc is to promote comparability, transparency  and standardisation of financial statements. The ICAI’s accounting standards are already applicable to Section 8 companies.

Financial Statements Includes

✤    Balance sheet

✤    A statement of profit and loss

✤    A cash flow statement (wherever applicable)

✤    Notes and other statements and explanatory material that are integral part of the financial statement

✤    Significant Accounting Policies

What Are Accounting Standards (AS)

Accounting standards prescribes the recognition and measurement principles as well as presentation and disclosure requirements of events, transactions and various elements of the financial statements. Currently there are three sets of AS:

1.     Indian Accounting Standards (Ind AS) for specified class of companies.

2.     Accounting Standards (AS) notified under Companies (Accounting Standards) Rules, 2021, for companies other than those following Ind AS;

3.     Accounting Standards (AS) prescribed by ICAI for entities other than companies*

*This article and the “Guidance note on Financial Statements on Non-Corporate entities” pertains to the third category above.

Applicability of the AS

The Guidance Note classifies entities into four levels of applicability. Entities should assess their respective level and identify the compliances accordingly.

Level I	Level II	Level III	Level IV
Full compliance	Medium	Small	Micro
Entities whose securities are listedor are in the process of listingon any stock exchange, whether in India or outside India Banks (including co-operative banks), financial institutions or entities carrying on insurance business All entities engaged in commercial, industrial or business activities, whose turnover (excluding other income) exceeds rupees two-fifty crore in the immediately preceding accounting year. All entities engaged in commercial, industrial or business activitieshaving borrowings (including public deposits) in excess of rupees fifty croreat any time during the immediately preceding accounting year Holding and subsidiary entities of anyone of the above	All entities engaged in commercial, industrial or business activities, whose turnover (excluding other income) exceeds rupees fifty crore but does not exceed two-fifty crore in the immediately preceding accounting year. All entities engaged in commercial, industrial or business activitieshaving borrowings (including public deposits) in excess of rupees ten crore but does not exceed fifty crore at any time during the immediately preceding accounting year Holding and subsidiary entities of anyone of the above	All entities engaged in commercial, industrial or business activities, whose turnover (excluding other income) exceeds rupees ten crore but does not exceed fifty crore in the immediately preceding accounting year. All entities engaged in commercial, industrial or business activitieshaving borrowings (including public deposits) in excess of rupees two crore but does not exceed ten crore at any time during the immediately preceding accounting year Holding and subsidiary entities of anyone of the above	Non corporateentities which are not covered under Level I, Level II and Level III are considered here

List of AS applicable to each levels

NO	DESCRIPTION	LEVEL I	LEVEL II	LEVEL III	LEVEL IV
AS   1	Disclosure of Accounting Policies	Yes	Yes	Yes	Yes
AS   2	Valuation of Inventories	Yes	Yes	Yes	Yes
AS   3	Cash Flow Statements	Yes	No	No	No
AS   4	Contingencies and Events Occurring After the Balance Sheet Date	Yes	Yes	Yes	Yes
AS   5	Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies	Yes	Yes	Yes	Yes
AS   7	Construction Contracts	Yes	Yes	Yes	Yes
AS   9	Revenue Recognition	Yes	Yes	Yes	Yes
AS  10	Property, Plant and Equipment	Yes	Yes	Yes	Yes
AS  11	The Effects of Changes in Foreign Exchange Rates	Yes	Yes	Yes	Yes
AS  12	Accounting for Government Grants	Yes	Yes	Yes	Yes
AS  13	Accounting for Investments	Yes	Yes	Yes	Yes
AS  14	Accounting for Amalgamations	Yes	Yes	Yes	No
AS  15	Employee Benefits	Yes	Yes	Yes	Yes
AS  16	Borrowing Costs	Yes	Yes	Yes	Yes
AS  17	Segment Reporting	Yes	No	No	No
AS  18	Related Party Disclosures	Yes	Yes	No	No
AS  19	Leases	Yes	Yes	Yes	Yes
AS  20	Earnings Per Share	Yes	No	No	No
AS  21	Consolidated Financial Statements	Yes	No	No	No
AS  22	Accounting for Taxes on Income	Yes	Yes	Yes	Yes
AS  23	Accounting for Investments in Associates in Consolidated Financial Statements	Yes	No	No	No
AS  24	Discontinuing Operations	Yes	Yes	No	No
AS  25	Interim Financial Reporting	Yes	No	No	No
AS  26	Intangible Assets	Yes	Yes	Yes	No
AS  27	Financial Reporting of Interests in Joint Ventures	Yes	No	No	No
AS  28	Impairment of Assets	Yes	Yes	Yes	Yes
AS  29	Provisions, Contingent Liabilities and Contingent Assets	Yes	Yes	Yes	Yes

The accounting standards issued by ICAI, are designed to ensure transparency, consistency, and reliability in financial reporting. Non-compliance with a mandatory standards of accounting may result in penalties and fines as per companies act, scrutiny by authorities, and audit qualifications. This will not only have implications on reputation and goodwill but may also  impact the confidence of stakeholders such as donors, lenders, creditors etc.,  which will ultimately impact the financial stability of organisation.