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Certification of Provisional Financial Statements

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Certification of Provisional Financial Statements for Non-Corporate Entities (except LLPs) w.e.f. 01.04.2024

The Accounting Standards Board of the Institute of Chartered Accountants of India (ICAI) has issued Guidance Note on Financial Statements of Non-Corporate Entities, prescribing standardized formats for presenting financial statements of such entities.

Scope of Applicability: This Guidance Note applies to:

  • Sole Proprietorships
  • Hindu Undivided Families (HUFs)
  • Partnership Firms
  • Association of Persons (AOPs)
  • Body of Individuals (BOIs)

Key Points of Guidance Note on Financial Statements of Non-Corporate Entities

Key highlights from the document include: Purpose and Scope

  1. Aims to enhance the quality, consistency, and comparability of financial statements for non-corporate entities.
  2. Introduces prescribed formats for balance sheets, profit and loss statements, and cash flow statements, where applicable.
  3. Excludes Limited Liability Partnerships (LLPs).

Applicability: Effective immediately from its issuance date. Applicable to entities not governed by specific statutory requirements for financial statement formats, except in cases like trusts under the Maharashtra Public Trust Rules, 1951.

Mandatory Compliance: These formats are mandatory for certifying Provisional Financial Statements for the Financial Year 2024-25. They will also apply to Tax Audit Reports and attachments for subsequent years.

Professional Responsibility: Chartered Accountants certifying provisional financials must ensure compliance with these prescribed formats.

Action Required for Guidance Note on Financial Statements of Non-Corporate Entities

Familiarize yourself with the Guidance Note on Financial Statements of Non-Corporate Entities issued by the ICAI. Ensure compliance while certifying provisional financial statements and conducting tax audits. The Guidance Note on Financial Statements of Non-Corporate Entities issued by ICAI provides standardized formats for the preparation and presentation of financial statements for various non-corporate entities such as sole proprietorships, HUFs, partnership firms, AOPs, BOIs, and trusts.

Key Features of Guidance Note on Financial Statements of Non-Corporate Entities

  • Balance Sheet Format: Clearly categorizes assets and liabilities into current and non-current items.
  • Statement of Profit and Loss: Includes line items for exceptional and extraordinary items, partners’ remuneration, and tax-related entries.
  • Additional Disclosures: Specifies requirements for owners’ funds, reserves, and surplus, liabilities, and contingencies.

Compliance with Accounting Standards (AS)

  • Entities are classified into four levels (Level I to IV) based on turnover, borrowings, and other criteria.
  • Level I entities must fully comply with all Accounting Standards.
  • Relaxations and exemptions are provided for Level II, III, and IV entities.

Consequences of Non-Compliance –Penalties for Non-Compliance

Failure to adhere to the prescribed formats may constitute professional misconduct under Clause (1) of Part II of the Second Schedule of the Chartered Accountants Act, 1949:

  • A member shall be deemed guilty of professional misconduct if they contravene any provisions of the Act, regulations made thereunder, or guidelines issued by the ICAI Council.
  • Non-compliance may lead to penalties under Clause (1) of Part II of the Second Schedule of the Chartered Accountants Act, 1949, which may result in professional misconduct charges.
  • For further information or clarification, refer to the ICAI’s official announcement or the detailed Guidance Note available on the ICAI website.
  • As per Clause (1) of the Part II of Second Schedule of the CA Act, 1949, a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he contravenes any of the provisions of this Act or the regulations made there under or any guidelines issued by the Council.

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