MCA broadens definition of small firm & increases turnover and borrowing limitations

The MCA (Ministry of Corporate Affairs) has broadened the definition of small and medium-sized enterprises (SME), increasing their turnover and borrowing limitations. According to a statement published, this would allow a broader range of firms to benefit from greater flexibility in accounting rules.

The 388-page announcement defines small and medium enterprises as unlisted organisations that are not banks, financial institutions, or insurance firms and have a revenue of up to Rs 250 crore and borrowings of up to Rs 50 crore in the previous fiscal year. Under general accounting standards, the thresholds for turnover and borrowings have been Rs 50 crore and Rs 10 crore, respectively. According to experts, the change in definition is for accounting considerations.

“SMC which is a holding company or subsidiary company of a non-SMC will not qualify as a small and medium company,” the notification stated.

According to experts, the implementation of these accounting rules is less difficult in terms of the amount of needed disclosures, which are less onerous.

The announcement further states that an existing firm that was not previously a small or medium-sized business but later became one would not be allowed to take use of any accounting standard exemptions. It is eligible for these exemptions if it continues to operate as a small and medium-sized business for two consecutive accounting periods.

The general purpose accounting rules of the ICAI apply to firms with a turnover of less than Rs 500 crore and a net worth of less than Rs 250 crore. The rest of the firms adhere to Indian accounting norms (IndAS).

According to the MCA (Ministry of Corporate Affairs) announcement, firms must disclose all important accounting policies used in the production and presentation of financial statements.

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