ICAI’s New Non-Corporate Entity Balance Sheet Format: Consequences and Compliance.
In this post, we will discuss the new balance sheet format introduced by ICAI for non-corporate entities, its key features, compliance requirements, and the consequences of not following the prescribed format.
Let’s look at them in detail:
Introduction:
Practising Chartered Accountants need to familiarise themselves with the revised format of financial statements applicable to non-corporate entities, effective from 1 April 2025. In this context, the ICAI Guidance Note on Financial Statements of Non-Corporate Entities is applicable to financial statements for accounting periods commencing on or after 1 April 2024.
The main aim of this change is to introduce a standard structure for financial statements, improve transparency, and make comparisons across entities easier. Chartered accountants and other qualified professionals who prepare financial statements for sole proprietors, HUFs, partnership firms, associations, societies, trusts, and statutory corporations must follow this guidance note while preparing the balance sheet, profit and loss account, cash flow statement, and other related statements.
Limited Liability Partnerships are not covered under this guidance, as LLPs are treated as corporate entities.
Key Features of the ICAI New Balance Sheet Format
The new balance sheet format for non-corporate entities is designed to improve the quality and clarity of financial reporting. Its main features are explained below in a simple way:
- Standard format
The new format gives a standard structure for all non-corporate entities. This helps maintain consistency and avoid confusion while preparing or reading financial statements. - Clear and simplified structure
The balance sheet is presented in a more structured and simplified format, clearly divided into ‘Equity and Liabilities’ and ‘Assets’. It distinctly classifies both liabilities and assets into non-current and current categories, while also clearly differentiating between financial and non-financial components. In addition, it incorporates a comprehensive and well-defined section on ‘Notes to Accounts’ for enhanced clarity and disclosure. - Improved disclosures
Non-corporate entities are required to provide comprehensive financial disclosures, including information on related party transactions and contingent liabilities. For example, the revised format mandates detailed disclosure of share capital, reserves, and other components of equity. - Classification of entities
Non-corporate entities are grouped into four levels: Level I, II, III, and IV. This classification is based on factors like size and turnover. Entity categorisation is essential, as each category is subject to distinct reporting requirements. - Relaxation for MSMEs
Micro, Small, and Medium Enterprises are exempt from certain compliance and reporting requirements, reducing their burden. - Sample formats provided
The guidance note includes sample formats for the balance sheet, profit and loss statement, and cash flow statement. These help entities understand and follow the format easily. - Easy comparison
Since everyone follows the same format, financial statements of different entities can be easily compared. This helps owners, lenders, and other stakeholders make better decisions. - Aligned with international standards
The format is in line with global practices and broadly follows International Financial Reporting Standards (IFRS), making the statements more reliable and widely acceptable.
Implementation Timeline
The guidance note was issued in August 2023, but the new balance sheet format applies from FY 2024–25. It means professionals and non-corporate entities need to start using the prescribed formats in their financial statements for the year 2024–2025. These statements will be prepared starting from 1 April 2025.
Compliance Requirements
When non-corporate entities adopt the new balance sheet format, they need to follow a few essential compliance rules:
- Follow Accounting Standards:
Entities must follow the Accounting Standards issued by ICAI based on their category, from Level I to Level IV. MSMEs can use available exemptions, but they must still comply with the standards that apply to them. - Prepare Financial Statements Properly:
Financial statements should be prepared using the formats given in the ICAI guidance note, unless any other law requires a different format. - Meet Disclosure Requirements:
Proper disclosures must be made for related party transactions, contingent liabilities, and other important financial details. - Auditor Verification:
Auditors must verify that the prescribed formats are followed during the audit. - Training and Awareness:
Chartered Accountants should keep themselves updated about these changes through ICAI training programmes and official updates. - Maintain Proper Documentation:
All supporting documents should be properly maintained to prove compliance during audits or inspections.
Consequences of Non-Compliance
If an entity does not follow the new balance sheet format prescribed by ICAI, it can lead to several problems.
- Regulatory penalties:Authorities may levy fines or take action for non-compliance.
- Damage to reputation:Incorrect or incomplete financial statements can reduce credibility among investors, lenders, and partners.
- Audit issues: Auditors may give a qualified report if the prescribed format is not followed.
- Legal troubles: Failure to disclose adequately can lead to disputes or legal action.
- Loss of stakeholder confidence: Investors and creditors may hesitate to rely on the financials.
The new accounting guidelines issued by ICAI for non-corporate entities are a positive step towards better financial reporting in India. These rules improve transparency, build trust, and help stakeholders make informed decisions. Although adjusting to the new format may take some effort at the beginning, it ultimately helps non-corporate entities improve credibility and run their operations more efficiently.
By that, we have come to the end of this post. If you have any questions or need clarity on the new ICAI balance sheet format, feel free to leave them in the comment section below.
