Accounting Standards apply most strictly to companies, but even here, the law recognises that small companies should not be burdened with the same level of compliance as large companies. That is why the Companies Act and MCA provide specific relaxations to Small and Medium-sized Companies (SMCs).
This blog clearly explains:
- How Accounting Standards apply to companies
- Difference between SMC and Non-SMC
- Which Accounting Standards are fully applicable
- Which relaxations are available to SMCs
This topic is very important for CA exams, corporate accounting, and audit practice.
Accounting Standards and Companies Act, 2013
For companies, Accounting Standards derive their authority from:
- Section 133 of the Companies Act, 2013
Under this section:
- Accounting Standards are prescribed by the Central Government
- Standards are recommended by ICAI
- Consultation is done with NFRA
Once notified, compliance becomes mandatory for companies.
Which Companies Are Covered?
Accounting Standards apply to:
- Private companies
- Public companies
- Listed companies
- Unlisted companies
The only major distinction is whether a company is:
- SMC (Small and Medium-sized Company), or
- Non-SMC
What Is an SMC (Small and Medium-Sized Company)?
A company is classified as an SMC if it satisfies the conditions prescribed under the Companies (Accounting Standards) Rules.
In simple terms, an SMC is:
- A company that is not large or publicly accountable
- Given certain relaxations under Accounting Standards
If a company does not qualify as an SMC, it is treated as a Non-SMC.
Applicability of Accounting Standards to Non-SMCs
Full Compliance Required
Non-SMCs must:
- Comply with all Accounting Standards in their entirety
- Follow full recognition, measurement, presentation, and disclosure rules
- Prepare detailed financial statements
No exemptions or relaxations are allowed to Non-SMCs.
Accounting Standards Applicable in Entirety to Companies
The following Accounting Standards apply fully to all companies, whether SMC or Non-SMC:
- AS 1 – Disclosure of Accounting Policies
- AS 2 – Valuation of Inventories
- AS 3 – Cash Flow Statements
- AS 4 – Contingencies and Events After Balance Sheet Date
- AS 5 – Net Profit or Loss and Prior Period Items
- AS 7 – Construction Contracts
- AS 9 – Revenue Recognition
- AS 10 – Property, Plant and Equipment
- AS 11 – Foreign Exchange Rates
- AS 12 – Government Grants
- AS 13 – Investments
- AS 14 – Amalgamations
- AS 16 – Borrowing Costs
- AS 18 – Related Party Disclosures
- AS 21 – Consolidated Financial Statements
- AS 22 – Accounting for Taxes on Income
- AS 23 – Investments in Associates
- AS 24 – Discontinuing Operations
- AS 26 – Intangible Assets
- AS 27 – Joint Ventures
These standards form the core framework for company accounting.
Relaxations Available to SMCs
SMCs are given specific relaxations, mainly in disclosure and measurement requirements.
AS 17 – Segment Reporting
- Not applicable to SMCs
AS 15 – Employee Benefits
SMCs get relaxations in:
- Actuarial valuation
- Discounting of long-term liabilities
- Detailed disclosures
However, SMCs must still:
- Recognise employee benefit obligations
- Use reasonable actuarial assumptions
AS 19 – Leases
SMCs are exempted from:
- Certain detailed disclosure requirements
Recognition and classification of leases is still mandatory.
AS 20 – Earnings Per Share
- Diluted EPS disclosure is not required for SMCs
AS 28 – Impairment of Assets
SMCs may:
- Estimate “value in use” instead of discounted cash flow
- Skip detailed discount rate disclosures
AS 29 – Provisions and Contingent Liabilities
SMCs are exempted from:
- Certain disclosure requirements
Recognition principles still apply.
AS 25 – Interim Financial Reporting
AS 25 does not force companies to prepare interim financial statements.
It applies only when:
- The company is required by regulators (e.g., SEBI), or
- The company voluntarily prepares interim results
Key Difference: SMC vs Non-SMC
| Basis | SMC | Non-SMC |
| Accounting Standards | With relaxations | Full compliance |
| Disclosure burden | Reduced | Full |
| Public accountability | Low | High |
Why This Topic Is Important
This topic helps you:
- Identify SMC vs Non-SMC in exams
- Apply correct Accounting Standards
- Avoid wrong disclosures
- Handle audit and compliance correctly
What’s Next?
Now that you understand company-level applicability, the final part of this chapter is:
MSME Disclosure Rules, Two-Year Condition & Transition Cases
This will complete the entire Applicability of Accounting Standards series
FAQs
1. Are Accounting Standards mandatory for all companies in India?
Yes. Accounting Standards notified under Section 133 of the Companies Act, 2013 are mandatory for all companies.
2. What is an SMC under Accounting Standards?
An SMC (Small and Medium-Sized Company) is a company that meets prescribed criteria and is eligible for certain relaxations under Accounting Standards.
3. Do Non-SMCs get any exemptions under Accounting Standards?
No. Non-SMCs must comply fully with all Accounting Standards without any exemptions.
4. Which Accounting Standard is not applicable to SMCs?
AS 17 (Segment Reporting) is not applicable in its entirety to SMCs.
5. Do SMCs get relaxation under AS 15 Employee Benefits?
Yes. SMCs get relaxations related to actuarial valuation, discounting, and detailed disclosures under AS 15.
6. Is EPS disclosure mandatory for SMCs?
Basic EPS is required, but disclosure of diluted EPS is exempted for SMCs.
7. Are companies required to prepare interim financial statements?
No. Interim financial statements are required only if mandated by regulators like SEBI or prepared voluntarily.
