ICAI Clarifies via AS-3 Guidance Note
With the ICAI’s introduction of a new Financial Statement format for non-corporate entities, many professionals are asking:
“Is preparation of Cash Flow Statement now mandatory for all non-company entities?”
Let’s break it down using Accounting Standard (AS) 3 and ICAI’s official Guidance Note.
✅ Applicability of Cash Flow Statement under AS-3
According to the ICAI Guidance Note on AS-3:
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✅ Mandatory: For Level I Non-Company Entities
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❌ Not Mandatory: For Level II, III, and IV entities (typically MSMEs)
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💡 Encouraged: All non-mandated entities are still encouraged to prepare the Cash Flow Statement for better transparency.
🏷️ ICAI’s Classification of Non-Company Entities
ICAI classifies Non-Company Entities into four levels based on turnover and borrowings during the preceding accounting year.
🔹 Level I Entities – Large Entities
📌 Cash Flow Statement: Mandatory
Includes entities meeting any of the following criteria:
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✅ Listed or in process of listing (India or abroad)
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✅ Engaged in banking, insurance, or financial services
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✅ Turnover > ₹250 Cr (excluding other income)
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✅ Borrowings > ₹50 Cr during the previous year
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✅ Holding/Subsidiary of any of the above
🔹 Level II Entities – Medium Entities
📌 Cash Flow Statement: Not Mandatory
Applicable if not Level I, but:
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✅ Turnover > ₹50 Cr and ≤ ₹250 Cr
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✅ Borrowings > ₹10 Cr and ≤ ₹50 Cr
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✅ Holding/Subsidiary of such entities
🔹 Level III Entities – Small Entities
📌 Cash Flow Statement: Not Mandatory
Applicable if not Level I or II, but:
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✅ Turnover > ₹10 Cr and ≤ ₹50 Cr
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✅ Borrowings > ₹2 Cr and ≤ ₹10 Cr
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✅ Holding/Subsidiary of such entities
🔹 Level IV Entities – Micro Entities
📌 Cash Flow Statement: Not Mandatory
Entities not covered in Levels I to III. Typically:
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Micro-sized businesses
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Minimal turnover and borrowings
🧾 Summary: What You Need to Know
| Entity Level | Turnover / Borrowing Criteria | Cash Flow Mandatory? |
|---|---|---|
| Level I | Turnover > ₹250 Cr or Borrowings > ₹50 Cr or listed/financial institution | ✅ Yes |
| Level II | Turnover ₹50–250 Cr or Borrowings ₹10–50 Cr | ❌ No |
| Level III | Turnover ₹10–50 Cr or Borrowings ₹2–10 Cr | ❌ No |
| Level IV | Below Level III threshold | ❌ No |
📌 Final Words
The Cash Flow Statement is not mandatory for all non-corporate entities, only for Level I.
However, ICAI encourages voluntary compliance for MSMEs (Level II, III & IV) to enhance financial transparency.
🔍 Know your classification.
🧾 Plan your compliance accordingly.
