ICAI Issues Clarificatory FAQs on Guidance Note on Financial Statements of Non-Corporate Entities

ICAI FAQs on Guidance Note on Financial Statements of Non-Corporate Entities The Institute of Chartered Accountants of India (ICAI) has released a set of Frequently Asked Questions (FAQs) to provide clarity on the Guidance Note on Financial Statements of Non-Corporate Entities, which have been in effect for accounting periods beginning on or after April 1, 2024.

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These FAQs which have been issued jointly by the Accounting Standards Board and the Auditing and Assurance Standards Board of ICAI, serve as an addendum to the Guidance Note whose main intent was to bring uniformity, comparability, and enhanced transparency to the financial reporting practices of non-corporate entities, including sole proprietorships, partnerships, trusts and similar structures.

While the Guidance Note, implemented from April 1, 2025, prescribes standardized formats and specific disclosure requirements to align Indian non-corporate reporting with global best practices, the newly issued FAQs address a host of practical questions that have arisen during its early implementation phase.

Among the primary clarifications is the reaffirmation that the Guidance Note supersedes the earlier Technical Guide on Financial Statements for Non-Corporate Entities, and that the formats and principles contained therein are now mandatory for the relevant entities, except where statutory regulators or specific ICAI guidance prescribe otherwise.

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The FAQs further explain the applicability of the Guidance Note, emphasizing that it extends to all non-corporate entities but excludes companies and Limited Liability Partnerships. The note also details the nature of entities it covers, here being proprietorships, Hindu Undivided Family (HUFs), partnership firms (registered and unregistered), societies, trusts, and autonomous bodies.

A key element within the FAQs is regarding the situations where the Guidance Note would not be applicable, such as when a statute or regulator provides separate formats or when specific ICAI guidance is already in force for certain types of organizations such as Educational Institutions, Political Parties and Not-for Profit Entities.

One critical area of redressal provided by the FAQs concerns the auditor’s responsibilities if a non-corporate entity fails to comply with the prescribed formats.

While the Guidance Note remains recommendatory, the FAQs clarify that auditors must disclose such non-compliance by non-corporate entities in their respective reports and exercise professional judgment on whether the situation warrants for a modified audit opinion.

Additionally, the FAQs elaborate on the requirement for presenting comparative figures, confirming that prior period data must be provided in the new format, except for first-time adopters.

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Significant attention is also given to recent changes in the applicability of Accounting Standards to non-corporate entities, explaining the revised classification and exemptions for Micro, Small, and Medium-Sized Entities (MSMEs) versus larger entities.

Through these clarifications, ICAI seeks to provide valuable guidance for both preparers and auditors while adapting to the new reporting framework and pushes for reducing ambiguity around key implementation issues that had not been explicitly covered in the original Guidance Note.

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