The Ministry of Corporate Affairs has expanded the turnover and borrowing thresholds for Small and Medium-sized Companies (SMC), allowing a larger number of firms to benefit from reporting exemptions under accounting norms.

What is the change?

• The MCA has increased the turnover threshold for SMCs to Rs 250 crore from Rs 50 crore, and the borrowing threshold to Rs 50 crore from Rs 10 crore.
• SMCs are permitted to avail a number of exemptions under the Company (Accounting Standards) Rule 2021 to reduce the complexity of regulatory filings for smaller firms.
• Banks, financial institutions, insurance companies, and listed companies cannot be classified as SMCs.
• Further, any company which is either the holding company or subsidiary of a company that is not an SMC cannot be classified as an SMC.

What are the exemptions available to SMCs that are not available to other firms?

• SMC are completely exempted from having to file cash flow statements and provide a segmental break up of their financial performance in mandatory filings.
• SMCs can also avail partial reporting exemptions in areas including reporting on employee benefits obligations such as pensions.
• SMCs are exempted from having to provide a detailed analysis of benefit obligations to employees, but are still required to provide actuarial assumptions used in valuing the company’s obligations to employees.
• SMCs are also exempted from having to report diluted earnings per share in their filings.
• Diluted earnings per share reflect the per-share earnings of a company assuming that all options to convert other securities into shares are exercised.

Answer this PYQ in the comment box:

Q. What is/ are the recent policy initiative(s) of the Government of India to promote the growth of the manufacturing sector?

1. Setting up of National Investment and Manufacturing Zones.
2. Providing the benefit of single window clearance.
3. Establishing the Technology Acquisition and Development Fund.

Select the correct answer using the codes given below:

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

How does this impact these firms?

• Experts have noted that the move would promote ease of doing business for the firms that would now be included under the definition of SMC.
• The Accounting Standards for SMC, which were notified in December 2006 and amended from time to time, are much simpler as compared to Indian Accounting Standards (Ind AS).
• These accounting standards involve less complexity in their application, including the number of required disclosures being less onerous.
• Ind AS standards are applied to larger firms and are largely similar to International Financial Reporting Standards (IFRS) used in most developed jurisdictions.

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