MCA expands small firm definition, raises turnover borrowing limits
The ministry of corporate affairs has expanded the definition of small medium companies (SMC), raising their turnover borrowing limits. This would enable a wider set of companies to avail of greater flexibility in the accounting standards, according to a notification issued on Wednesday.
The 388-page notification has defined small medium companies as unlisted entities which are not banks, financial institutions or insurance firms have a turnover of up to Rs 250 crore borrowings up to Rs 50 crore in the immediately preceding accounting year. The threshold has been Rs 50 crore Rs 10 crore for turnover borrowings under the general accounting standards.
The change in definition is for accounting purposes, experts said.
“SMC which is a holding company or subsidiary company of a non-SMC will not qualify as a small medium company,” the notification said.
“The notification is self-contained accounting standards tailored for the needs capabilities of smaller businesses acts as a common set of accounting standards that will be mandatory in its application to SMC in preparing its general purpose financial statements. The accounting standards for SMC, which were earlier notified in December 2006 amended from time to time, are much simpler as compared to Indian Accounting Standards,” said Vikas Bagaria, Partner, Deloitte India.
Experts have said that these accounting standards involve less complexity in its application in terms of the number of required disclosures which are less onerous.
The notification also says that an existing company which was not a small medium company previously but became so subsequently would not be able to avail of any exemptions in accounting standards. It can avail of these exemptions if it continues as a small medium company for two consecutive accounting periods.
“The limits are in line with a similar increase in threshold done by ICAI (Institute of Chartered Accountants of India) for non-corporate entities. The revised criteria will help a number of companies will promote ease of doing business,” said Sanjeev Singhal, Partner, SR Batliboi & Co LLP.
For companies which have a turnover of less than Rs 500 crore net worth of less than Rs 250 crore, the general purpose accounting standards of ICAI apply. Rest of the companies follow the Indian accounting standards (IndAS).
The MCA notification said that all significant accounting policies adopted in the preparation presentation of financial statements should be disclosed by companies. “The disclosure of significant accounting policies as such should form part of the financial statements the significant accounting policies should normally be disclosed in one place.”
Business Standard has always strived hard to provide up-to-date information commentary on developments that are of interest to you have wider political economic implications for the country the world. Your encouragement constant feedback on how to improve our offering have only made our resolve commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed updated with credible news, authoritative views incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better more relevant content. We believe in free, fair credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism subscribe to Business Standard.