Accounting standards are rules that govern the accounting process. The main objective of these rules is to provide consistency and uniformity in accounting practices and reporting. These standards are the rules, principles and practices that govern how businesses record, classify, value and report their financial transactions. In other words, accounting standards define how companies set up their books for reporting to shareholders and lenders. If you are wondering how many accounting standards are there, well the short answer is 41. However, different accounting standards are applied to a company based on the type of enterprise level of the company.
- Level 1 Enterprises and companies
Level I companies are the most widely recognized and trusted institutions in India. These companies are subject to a higher level of scrutiny than other businesses. So, the following types of companies are classified as level 1 enterprises:
- Companies that offer equity or debt securities. These could be located either inside or outside India
- Companies that are not currently offering equity or debt securities however are in the process of offering themin the future. But in such cases resolution by the Board of Directors is necessary as it will be used as an evidence
- All kinds of banks including the cooperative banks
- Companies that are permitted to sell insurance are adding more tothe insurance business
- Financial institutions
- If the income of the company exceeds Rs 50 crorethen that company is classified as level I. However, there are some conditions attached to this stipulation. For instance, the company has to be, shall industrial or business reporting enterprise. Additionally while calculating its turnover ‘other income is not included. And the tunnel was to be calculated only for the preceding accounting and on the basis of only the audited financial statements
- If the company has borrowings which are more than rubies 10 croresat any given time in the accounting period then that company is classified as level 1 and enterprise. This includes all commercial industry and business reporting companies. And borrowings have to include public deposits as well
- If the companies are holding in some subsidiary enterprise of any company that is false in any of the categories mentioned previously that company also becomes a level I enterprise
- Level 2 Enterprises and companies
The following types of companies are classified as level 2 enterprises:
- If theturnover of the company is greater than 40 lakhs than 50 crores then that company is a level 2 enterprise. This could include, commercial or industrial or even business reporting companies.. the turnover is calculated only for the preceding accounting period and on the basis of audited financial statements, not unaudited ones.
- If theborrowings of the company are more than Rs 1 crore but less than Rs. 10 crore then that company is also categorized as a level 2 two enterprises. This is applicable to all companies irrespective of whether it’s a commercial company or a business reporting company is an industrial company. Moreover in order to be categorized as a level 2 company based on the borrowings criteria the company could meet this threshold at any time during the accounting.
- The holding and subsidiary companiesfor the companies listed above are also categorised as level2 companies
- Level 3 Enterprises and companies
If the company can’t be categorized as a level 1 enterprise or a level 2 enterprise then automatically it becomes a level 3 enterprise.
Due to the wide variations in the features, characteristics, rules and regulations for the three levels of enterprises, there are variations in the accounting principles and features applicable to each of them. This is why there are so many different accounting standards.
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