CA Intermediate · Advanced Accounting

Applicability of Accounting Standards: formula sheet

Full chapter guide

Key formulas

Source of AS for companies: Section 133, Companies Act, 2013 + Companies (Accounting Standards) Rules, 2006 as amended; The Central Government prescribes the standards in consultation with NFRA and after examining NFRA's recommendations. ICAI formulates and recommends to NFRA; NFRA recommends to the Government. Do not say ICAI itself notifies them for companies.
Compliance duty of a company: Section 129: financial statements must comply with the notified standards; Schedule III sets the format. Accounting Standards set the recognition, measurement and disclosure rules.
Two tracks for companies: Ind AS (Rules, 2015) for covered companies; AS (Rules, 2006 as amended) for all others; A company is on one track, never both.
Non-company entities: ICAI's level-based classification, using the current ICAI criteria; The top level applies all AS in full. Lower levels get relaxations, so check the exemption for the specific standard. Use the levels and criteria in your current ICAI study material.
Role of ICAI: ICAI formulates and recommends to NFRA; NFRA recommends to the Central Government, which prescribes for companies; ICAI standards bind members; Use this sentence in theory answers.
Level I (non-company entity): Listed or in process of listing (in India or outside India), OR bank / financial institution / insurer, OR turnover > ₹250 crore, OR borrowings > ₹50 crore, OR holding / subsidiary of a Level I entity; Any one condition is enough. Turnover excludes other income. Borrowings include public deposits and are tested at any time during the immediately preceding accounting year. The group-link test here is only about Level I. It is not the SMC group test.
Level II (non-company entity): Not Level I, and any one of: turnover > ₹50 crore up to ₹250 crore, OR borrowings > ₹10 crore up to ₹50 crore, OR holding / subsidiary of a Level II entity; Check Level I first. Level II applies only to entities that fail every Level I test, and then any one Level II trigger is enough. A holding or subsidiary of a Level II entity is itself Level II.
Level III (non-company entity): Neither Level I nor Level II: turnover ≤ ₹50 crore and borrowings ≤ ₹10 crore, with no listing, nature-of-business or group-link trigger for Level I or II; Level III is the residual class. You prove it by ruling out the other two. It gets the most relaxations.
Small and Medium Sized Company (SMC): Not listed or in process of listing (in India or outside India), not a bank / financial institution / insurer, turnover ≤ ₹250 crore, borrowings ≤ ₹50 crore, and not a holding or subsidiary of a non-SMC; A company that fails any one of these conditions is a non-SMC. Turnover excludes other income. SMC is a separate classification from Level I, II and III, with its own group-link test: not a holding or subsidiary of a non-SMC. It has no Level II-type middle tier.

Quick revision

Non-company entities are classified into Level I, Level II and Level III. Companies are Non-SMC or SMC.
Test in order: Level I first, then Level II, and anything left is Level III.
Level I includes entities with listed or about-to-be-listed securities, and banks, financial institutions and insurance entities.
Level I also includes entities with turnover above ₹250 crore or borrowings above ₹50 crore.
Level II covers turnover above ₹50 crore up to ₹250 crore, or borrowings above ₹10 crore up to ₹50 crore, if not Level I.
Turnover for the test excludes other income.
Turnover and borrowings are looked at for the immediately preceding accounting year; borrowings at any time in that year.
A holding or subsidiary of a Level I entity is itself Level I. The same link rule applies for Level II.
Level I entities follow all Accounting Standards in full.
Level II and III entities get exemptions and relaxations from specified standards; learn them from your own table.
Meeting any one Level I condition is enough. You do not need to meet all of them.
Companies fall under the Companies (Accounting Standards) Rules, and Schedule III governs the format of their financial statements.

Common mistakes

Saying ICAI notifies Accounting Standards for companies. Fix: Write: ICAI formulates and recommends to NFRA, NFRA recommends to the Central Government, the Government prescribes under section 133 after examining NFRA's recommendations, and the Rules make them binding on companies.
Saying the Companies (Accounting Standards) Rules, 2021 replaced the 2006 Rules. Fix: The 2021 Rules are amendment rules. They amended the 2006 Rules, which remain the base set. Cite the AS Rules as Companies (Accounting Standards) Rules, 2006 as amended.
Including other income in turnover Fix: Use turnover from operations only. Exclude other income such as interest on investments, rent or profit on sale of assets.
Treating an entity exactly at the limit as the higher class Fix: Level I needs turnover or borrowings above the limit. At exactly ₹250 crore turnover, with no other trigger, the entity is not Level I on that test.

Exam tips

Write the full name: Companies (Accounting Standards) Rules, 2006, as amended, with section 133 of the Companies Act, 2013. This earns the provision mark.
In MCQs, watch for the word notified. For companies the Government prescribes the standards. ICAI formulates and recommends to NFRA.
Do the entity, track, relief check in every scenario question. Name the entity first.
Do not quote money thresholds in this topic unless the question gives them. Study the level tests in the classification topics.
Keep theory answers to the provision, the facts, and a one-line conclusion.
Write the criteria first, then the facts, then the conclusion. Examiners give marks for each step, not just the class.
Underline the words 'listed', 'subsidiary', 'holding', 'bank' and 'insurer' in the question. These are the traps that override the size figures.
In MCQs, the entity takes the highest class it qualifies for. Test Level I first.