📊 Is Cash Flow Statement Mandatory for Non-Corporate Entities?

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:

• ✅ Mandatory: For Level I Non-Company Entities

• ❌ Not Mandatory: For Level II, III, and IV entities (typically MSMEs)

• 💡 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:

• ✅ Listed or in process of listing (India or abroad)

• ✅ Engaged in banking, insurance, or financial services

• ✅ Turnover > ₹250 Cr (excluding other income)

• ✅ Borrowings > ₹50 Cr during the previous year

• ✅ Holding/Subsidiary of any of the above

🔹 Level II Entities – Medium Entities

📌 Cash Flow Statement: Not Mandatory

Applicable if not Level I, but:

• ✅ Turnover > ₹50 Cr and ≤ ₹250 Cr

• ✅ Borrowings > ₹10 Cr and ≤ ₹50 Cr

• ✅ Holding/Subsidiary of such entities

🔹 Level III Entities – Small Entities

📌 Cash Flow Statement: Not Mandatory

Applicable if not Level I or II, but:

• ✅ Turnover > ₹10 Cr and ≤ ₹50 Cr

• ✅ Borrowings > ₹2 Cr and ≤ ₹10 Cr

• ✅ Holding/Subsidiary of such entities

🔹 Level IV Entities – Micro Entities

📌 Cash Flow Statement: Not Mandatory

Entities not covered in Levels I to III. Typically:

• Micro-sized businesses

• Minimal turnover and borrowings

🧾 Summary: What You Need to Know

📌 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.