A major update as there is now Relaxation in Accounting Rules for Small and Medium Companies in India. This was done to support the idea of making it easy to do business in India. The goal is to cut down on the amount of paperwork and time it takes to generate financial statements.
As a result of this notification, a large number of businesses will be included in the definition of SMC businesses. Hence, various SMC(Small and Medium Companies) can benefit from Online Bookkeeping and Accounting Services.
In this article, we will understand the latest update of relaxation in Accounting Rules for Small and Medium Companies in India
New Amendment in MSME Act.2006
The government has introduced new modifications to the Micro, Small, and Medium Enterprises Development Act, 2006. As a result, it has increased the upper maximum limit on turnover for registration purposes for micro, small and medium enterprises. There are several reasons for the changes. Some of the most significant ones are as follows.
- Firstly, The upper limits have not been updated for a long time. However, there has been growth in the economy. Consequently, the limits need to be revised as well.
- Over time, the number of accounting rules and disclosure requirements has grown. That’s why These standards also need to be updated on a regular basis to meet the global requirements.
- Because of the different disclosure requirements, the time required to prepare financial statements has increased significantly. Furthermore, The compliance burden on SMCs has also increased as a result of this.
- The new updates also aid the alignment of the two acts.
Key Relaxation in Accounting Rules
- The major relaxation is the upper limit for yearly turnover has been increased to Rs 250 crores from Rs 50 crores.
- Similarly, the higher cap for borrowings has been increased to Rs 50 crores from Rs 10 crores as per the new guidelines.
The new regulations will take effect for accounting periods beginning on or after April 1, 2021, and will supersede previous standards released in 2006.
Exemptions for SMC
Another major change is Accounting Standard 3 (Cash flow statement) and Accounting Standard 17 (Segment reporting) are now not applicable to SMC. However, AS 3 exemption will only apply to firms with paid-up capital of up to Rs 50 lakhs and revenue of up to Rs 2 crores, as preparation of a cash flow statement is mandatory beyond these thresholds under section 2(40) of the Companies Act 2013.
Other Relaxation in Accounting Rules for Small and Medium Companies in India
- There is an exclusion from extensive disclosures required by Accounting Standard 15 ‘Employee Benefits,’ as well as a simplification in terms of liability valuation. Furthermore, it will reduce the actuarial valuation of liabilities and Companies will save money.
- The accounting standard necessitates full disclosures for both operational and finance leases. SMC companies are excluded from such disclosures under the new requirements.
- It is now not necessary to provide diluted earnings per share.
- Management estimates can be used instead of present value methodologies for impairment provisioning. In many circumstances, this will also lower the cost of using experts’ or valuers’ services.
- Organizational estimates can be used instead of present value methodologies for impairment provisioning.
In conclusion, Several small and mid-sized businesses will be able to close their books of account in less time than large businesses as a result of the modification. Hence, having an Online Bookkeeping and Accounting Service can be very beneficial now.
Download E-Startup Mobile App and Never miss the freshest updates narrating to your business.