Accounting standards ensure that financial statements are consistent, comparable, and credible. Whether a business is an SME, a startup preparing for investment, or a company undergoing audit, understanding basic accounting standards is essential. Standards prevent errors, improve transparency, and ensure that financial reports reflect the true performance and position of the business.
• Standards create uniformity in financial reporting.• They prevent manipulation and misinterpretation of accounts.• Auditors, lenders, and investors rely on standard-based statements.• MCA, ICAI, and Income Tax authorities expect compliance.• Even small businesses benefit from understanding core standards.
To provide a simple, clear overview of the accounting standards applicable in India, their purpose, categories, and how SMEs and startups should apply them in practice.
Accounting standards are formal guidelines prescribing how financial transactions should be recorded, measured, and disclosed in financial statements.They ensure transparency, consistency, and comparability.
In India, accounting standards come under three major frameworks:
– Traditional standards under Companies (Accounting Standards) Rules, 2021.
– IFRS-converged standards for larger companies.
– Practical guidance for industry-specific issues.
Applicable to:• Most private limited companies below Ind AS thresholds• SMEs with moderate turnover• Entities not publicly listed
These standards are simpler compared to Ind AS.
Mandatory for:• Listed companies• Companies with net worth ≥ ₹250 crore• Subsidiaries, associates, and holding companies of Ind AS entities
Ind AS is more detailed and aligned with IFRS.
As per revised , applicability depends on:• Turnover• Borrowings• Public interest
Classifications include:• Level I entities• Level II entities• Level III entities• Level IV entities
Disclosure requirements vary accordingly.
Below is a practical list—not exhaustive—but highly relevant for SMEs, startups, and accountants:
Requires consistency in policies such as revenue recognition, inventory valuation, depreciation, etc.
Defines cost formulae like FIFO, Weighted Average.Required for accurate COGS and stock valuation.
Explains operating, investing, and financing cashflows.Mandatory for companies; useful for internal MIS.
Deals with capitalisation, depreciation, revaluation, impairment.
Covers treatment of forex gains/losses on imports, exports, loans.
How to account for subsidies, incentives, and grant income.
Interest costs to be capitalised if directly attributable to an asset.
Required for companies with multiple business or geographical segments.
Requires disclosure of transactions with directors, relatives, group entities.
Covers deferred tax assets and liabilities.
Though not applicable to all SMEs, startups funded by VCs or planning IPOs should understand key Ind AS principles:
• • • • • •
Ind AS provides deeper insight into economic reality—but is complex.
Determine:• Entity type• Turnover• Net worth• Regulatory requirements
Standardised policies for:• Revenue• Inventory• Depreciation• Foreign exchange• Borrowing costs
• Stock valuation• Accrual processes• Depreciation booking• Forex adjustments• Related party monitoring
• Year-end checklists• Disclosure notes• Audit readiness documentation
Compliance becomes systematic, not last-minute.
SaaS Startup Financials prepared without following AS/Ind AS concepts → misleading revenue and expense figures.
• Implemented AS 1, AS 9, AS 10 principles• Introduced proper revenue recognition• Reclassified assets and expenses• Prepared disclosure notes
• Clear reporting for investors• Clean audit• Improved valuation discussions
• Standard Accounting Policies Template• AS/Ind AS Applicability Assessment Tool• Disclosure Checklist• Year-End Accounting Standards Compliance Checklist• Ind AS vs AS Comparison Table