In this guide · 10 sections
- Who is covered, and from which year
- How the format differs from Schedule III
- Partners' capital, proprietor's capital and drawings
- A worked example: firm with two partners
- Which Accounting Standards apply: MSME or Large
- LLPs: section 34, rule 24 and Form 8
- The auditor where the format is not followed
- Checklist for the file
- FAQs
- Sources
- ICAI issued two separate Guidance Notes in August 2023: one for non-corporate entities (proprietors, firms, HUFs, AOPs, trusts, societies) and one for LLPs. LLPs are scoped out of the first.
- Both now apply in phases under ICAI's 31 March 2026 announcement: FY 2025-26 where turnover exceeds ₹5 crore, and FY 2026-27 for all entities. FY 2024-25 was voluntary.
- The format follows the Schedule III layout but replaces shareholders' funds with owners' funds, requires a partner-wise capital and current account movement and shows partners' remuneration as its own line before profit before tax.
- There is no Schedule III ageing table and no Additional Regulatory Information: receivables are split at six months from the due date, and the MSMED Act interest details stay.
- The ₹5 crore test decides when the format applies. A different test, MSME or Large (₹250 crore turnover, ₹50 crore borrowings), decides which Accounting Standards apply. If the format is not followed, ICAI's FAQs say the auditor discloses it and considers a modified opinion.
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Start freeA partnership firm with ₹8 crore turnover brings its accounts for tax audit: a two-sided balance sheet, a capital account total, last year's closing figures as usual. Until this year nobody objected. ICAI's position has since firmed up, and the file now raises real questions. Does the firm have to use the Guidance Note format for FY 2025-26? What about the proprietor at ₹3 crore, or the LLP whose Form 8 was due on 30 October? And what does the auditor do if the client will not change? This guide covers who is covered and from when, how the format differs from Schedule III, which Accounting Standards apply, and what the auditor reports. Law and ICAI pronouncements as at 31 October 2026; figures are illustrative.
Who is covered, and from which year
ICAI's Accounting Standards Board issued two Guidance Notes in August 2023, upgrading the June 2022 Technical Guides:
| Guidance Note | Covers | Does not cover |
|---|---|---|
| Financial Statements of Non-Corporate Entities | Business or professional entities other than companies and LLPs: sole proprietors, HUFs, registered and unregistered firms, AOPs and BOIs, societies, trusts, statutory corporations and authorities | LLPs. Also entities whose format or principles are laid down by a statute, regulator or authority (the Note's examples include trusts under the Maharashtra Public Trust Rules and central autonomous bodies), and areas with specific ICAI guidance such as educational institutions, political parties and NPOs |
| Financial Statements of Limited Liability Partnerships | LLPs under the LLP Act, 2008 | Companies and other entities |
The dates have moved twice, so older write-ups may be out of date:
| Accounting period | Position | Source |
|---|---|---|
| FY 2024-25 | Effective date in the Notes was periods beginning on or after 1 April 2024, but ICAI relaxed compliance: the Notes could be applied voluntarily. Accounting Standards and the Framework continued to apply | ICAI announcement, 19 September 2025 |
| FY 2025-26 (Phase I) | Periods beginning on or after 1 April 2025, for entities whose turnover exceeds ₹5 crore | ICAI announcement, 31 March 2026 (451st Council meeting) |
| FY 2026-27 (Phase II) | Periods beginning on or after 1 April 2026, for all entities | Same |
Two gaps in the announcement need a decision on file. It does not define turnover or say which year's turnover is tested for Phase I, so record the basis you used. It also does not separate audited from unaudited entities. A client below ₹5 crore moves in FY 2026-27 anyway, and FY 2025-26 becomes its comparative, so mapping its ledgers to the format this year saves work next year.
How the format differs from Schedule III
The Note's layout will look familiar if your team drafts Schedule III Division I: vertical balance sheet, current and non-current split with the same 12-month and operating cycle tests, notes cross-referenced to the face. The differences are in what it adds for owners and what it leaves out.
| Area | Schedule III Division I (companies) | Non-corporate Guidance Note |
|---|---|---|
| Top of the balance sheet | Equity and liabilities; shareholders' funds | Owners' funds and liabilities; an AOP may say "members' funds". The LLP Note uses "Partners' Funds" |
| Capital | Share capital note: reconciliation, large holders, promoters' shareholding | Owners' / partners' capital account and current account, with a movement for each owner |
| Accumulated profit | Surplus within reserves and surplus | "Undistributed Surplus" within reserves; a debit balance is shown as a negative |
| Trade receivables | Ageing table in the prescribed buckets | Amount outstanding beyond six months from the due date stated separately; secured, unsecured and doubtful split. The illustrative note adds a line for unbilled receivables |
| Trade payables | Micro and small split on the face; ageing table | No ageing. MSMED Act interest details in the notes; the illustrative note splits dues of "micro, small and medium enterprises" and others |
| CWIP and intangibles under development | Ageing and completion schedules | Separate lines on the face; no ageing |
| Additional Regulatory Information | Title deeds, the eleven ratios and the other 2021 additions | Not in the format |
| Profit and loss | No partner lines | Partners' remuneration is its own line after profit before partners' remuneration and tax; interest on partners' capital is shown within finance costs |
| Other items in the notes | Paragraph 5 of the P&L instructions | Any item above 1% of revenue from operations or ₹1,00,000, whichever is higher, shown separately; also rent, power, repairs and similar named heads, and prior period items |
| Cash flow statement | Required, except where the Act exempts the company | Where AS 3 applies, which means Large entities only (see below) |
| Comparatives and rounding | Required; bands set by total income at ₹100 crore | The same in substance, except an entity's first financial statements |
The Note calls these minimum requirements. Lines can be added or substituted where that helps understanding, and ICAI's FAQs accept that a line with nil in both years may be dropped if the true and fair view is unaffected. So a bank that wants a debtors ageing can have one; the format does not stop you. Disclosures under Accounting Standards and any governing statute remain on top of the format.
Three size tests that get mixed up. The ₹5 crore applicability test, ICAI's MSME category for Accounting Standards (next section) and the MSMED Act status of a supplier are separate. The trade payables details are about the third: unpaid principal and interest, interest paid under section 16, interest due for delayed payments, and interest carried forward for the section 23 disallowance. Build them from the supplier's Udyam status, not from your client's own size.
Pick the entity in SignReady (LLP, partnership, proprietorship, HUF) and the editable Excel draft follows the LLP or non-corporate format instead of Schedule III, with previous-year figures, for the firm to review and finalise.
Partners' capital, proprietor's capital and drawings
This is where the most rework falls. For each owner's capital account and current account the note must separately show the opening balance, capital introduced, remuneration, interest, withdrawals, share of profit or loss (percentage and amount) and the closing balance. The format marks the capital and current lines "applicable, if relevant", so a firm that keeps only one account for each partner can present that one.
A single "Partners' Capital" total with a working in the audit file no longer meets it. If drawings were booked in loan or expense ledgers, or remuneration was never credited to the partner's account, fix that before drafting.
Proprietor. The same note applies with a 100% share. Drawings are the "withdrawals during the year", and they should include private items paid from the business, such as personal insurance and the proprietor's own income tax. For example: opening capital ₹30,00,000, plus introduced ₹2,00,000, plus profit ₹9,40,000, less withdrawals ₹6,10,000, gives closing capital ₹35,30,000.
Several businesses. A proprietor or firm with several Tally companies or branches presents one set in this format, after combining them and removing inter-business balances. A "Shop A/c" balance left in capital would distort the partner-wise note.
A worked example: firm with two partners
A and B share profits 60:40 and keep fixed capital with current accounts. A brought in ₹5,00,000 on 1 April; interest on capital is 12%. Figures are illustrative; the previous-year columns the format requires are left out to save space.
| Note 3a: Capital account | Opening | Introduced | Closing |
|---|---|---|---|
| A (60%) | 20,00,000 | 5,00,000 | 25,00,000 |
| B (40%) | 15,00,000 | 0 | 15,00,000 |
| Total | 35,00,000 | 5,00,000 | 40,00,000 |
| Note 3b: Current account | Opening | Remuneration | Interest | Withdrawals | Profit share | Closing |
|---|---|---|---|---|---|---|
| A (60%) | 4,20,000 | 6,00,000 | 3,00,000 | (9,50,000) | 7,20,000 | 10,90,000 |
| B (40%) | 2,60,000 | 4,80,000 | 1,80,000 | (6,40,000) | 4,80,000 | 7,60,000 |
| Total | 6,80,000 | 10,80,000 | 4,80,000 | (15,90,000) | 12,00,000 | 18,50,000 |
| Statement of Profit and Loss (extract) | ₹ |
|---|---|
| Profit before partners' remuneration and tax (after ₹4,80,000 interest on capital in finance costs) | 28,24,000 |
| Partners' remuneration | (10,80,000) |
| Profit before tax | 17,44,000 |
| Tax expense | (5,44,000) |
| Profit for the year, credited to current accounts 60:40 | 12,00,000 |
| Balance Sheet as at 31 March 2026 (extract) | ₹ |
|---|---|
| Owners' funds | |
| Partners' capital account (Note 3a) | 40,00,000 |
| Partners' current account (Note 3b) | 18,50,000 |
| Reserves and surplus (general reserve) | 2,00,000 |
| Sub-total | 60,50,000 |
| Non-current liabilities: long-term borrowings 18,00,000; long-term provisions 1,50,000 | 19,50,000 |
| Current liabilities: short-term borrowings 22,00,000; trade payables 31,40,000; other current liabilities 6,30,000; short-term provisions 2,30,000 | 62,00,000 |
| Total | 1,42,00,000 |
| Non-current assets: property, plant and equipment 38,50,000; other non-current assets 3,00,000 | 41,50,000 |
| Current assets: inventories 46,20,000; trade receivables 39,80,000; cash and bank 9,70,000; short-term loans and advances 4,80,000 | 1,00,50,000 |
| Total | 1,42,00,000 |
The year's comparative has to be regrouped too. A first-year format change alters presentation rather than profit: see regrouping previous-year figures. For the ledger-to-note routine, the mapping steps in Tally TB to draft statements carry over, with the capital note replacing the share capital note.
Which Accounting Standards apply: MSME or Large
The Guidance Note deals with presentation. Recognition and measurement come from the Accounting Standards, under ICAI's announcement from its August 2024 Council meeting, effective for periods commencing on or after 1 April 2024. It replaced the four Levels with two categories; references to Levels II, III and IV are read as MSME and Level I as Large.
A non-company entity is an MSME only if all of these hold, tested as at the end of the relevant accounting period: its securities are not listed or being listed; it is not a bank, financial institution or insurer; turnover (excluding other income) did not exceed ₹250 crore in the preceding year; borrowings did not exceed ₹50 crore at any time in the preceding year; and it is not a holding or subsidiary of a non-MSME. Everything else is Large and complies with all Accounting Standards in full.
| Standard | Position for an MSME |
|---|---|
| AS 3, AS 17, AS 20, AS 24 | Not applicable to any MSME. So no cash flow statement is required, though AS 3 encourages one |
| AS 18, AS 28 | Not applicable where turnover does not exceed ₹50 crore and borrowings do not exceed ₹10 crore in the preceding year, and the entity is not a holding or subsidiary of an MSME outside these limits. Others may estimate value in use under AS 28 without present value |
| AS 22 | Current tax only; no deferred tax required. On first use, accumulated deferred tax is adjusted against opening revenue reserves or owners' funds |
| AS 15 | Relief on non-vesting short-term absences and discounting; defined benefit and other long-term benefits may use another rational method, such as assuming all are payable at year-end |
| AS 10, AS 11, AS 19, AS 26, AS 29 | Relief from specified disclosures only |
| AS 14, AS 27 (jointly controlled operations and assets) | Not applicable, unless the entity has such transactions |
| AS 21, AS 23, AS 25 | Only if the entity is required to, or chooses to, prepare consolidated statements or an interim report |
Three conditions travel with the relief. An MSME that uses it must say so in a note, and must name the Standards if it uses relief for some but not all. An entity that stops being an MSME applies the Standards from the current period and discloses that comparatives were not revised. A Large entity that shrinks gets no relief until it has remained an MSME for two consecutive years.
Sample note: "The firm is a Micro, Small and Medium Sized Entity under the ICAI announcement on non-company entities, and has complied with the Accounting Standards as applicable to such an entity."
LLPs: section 34, rule 24 and Form 8
- Accounts. Section 34 of the LLP Act, 2008 requires proper books on a cash or accrual basis under double entry, and a Statement of Account and Solvency for each year within six months of the year-end, signed by the designated partners.
- Filing. Under rule 24 of the LLP Rules, 2009 the statement goes in Form 8 within 30 days from the end of six months of the financial year: 30 October for a March year-end. Form 8 is MCA's prescribed form and the Guidance Note does not replace it, so agree its figures to the format statements.
- Audit. Rule 24 exempts an LLP whose turnover does not exceed ₹40 lakh in a financial year, or whose contribution does not exceed ₹25 lakh. The word is "or", so read literally an LLP below either limit is exempt, yet many practitioners treat either limit being crossed as requiring audit. Published commentary also reports that MCA's Form 8 kit asks for auditor certification when either limit is exceeded; we could not open the kit, so check it. Where only one limit is crossed (say turnover ₹1.10 crore, contribution ₹20 lakh), read the current rule and the form, take a view and record it. An exempt LLP may still choose audit, under the same rule. A tax audit under the Income-tax Act is a separate question.
- Format. ICAI's illustrative workbook uses Partners' Funds with Partners' Contribution (Note 3a) and Partners' Current Account (Note 3b). The contribution note adds a column for each partner's agreed contribution, which should tie to the LLP agreement. Receivables follow the same six-month split.
- Accounting Standards. ICAI's February 2025 Exposure Draft of Accounting Standards for LLPs says ICAI's AS and its revised non-company criteria presently apply to LLPs, so the same MSME or Large scheme decides which AS apply. The draft proposes a separate set of AS for LLPs, to be notified. We did not find a final notification, so check MCA's site before relying on this.
- Ind AS. ICAI's Notes describe Ind AS as being for specified classes of companies. Section 34A, inserted in 2021, lets the Central Government prescribe accounting standards for classes of LLPs, on ICAI's recommendation and in consultation with NFRA. We did not find a notification prescribing Ind AS for LLPs either; check MCA's site if a client's group raises it. The August 2024 announcement says it is not relevant to an entity that a regulator requires to follow Ind AS or AS.
The auditor where the format is not followed
ICAI's FAQs on the non-corporate Note say two things that can seem to pull apart. The Note does intend to prescribe the presentation format, and its authority is the same as any other Guidance Note, which ICAI's Clarification describes as recommendatory. The Clarification also says a member should examine, while discharging the attest function, whether recommendations on an accounting matter were followed, and consider whether disclosure in the report is needed.
The FAQ's practical answer: where the client does not present in the format or does not meet the Note's requirements, the auditor is required to disclose this in the report, and uses professional judgement on whether it leads to a modified opinion under the Standards on Auditing. The Note also reminds auditors that a tax audit under section 44AB involves an audit of the financial statements and a true and fair report in Form 3CB, so the question arises in a tax audit file as well. The FAQs we read cover the non-corporate Note; apply the same logic to an LLP after checking the LLP Note.
Separate two cases. A missing partner-wise note is a presentation gap. A departure from an applicable Accounting Standard is a different matter, because the Preface to the Accounting Standards makes it the auditor's duty to report the deviation. Illustrative wording, ours and not ICAI's, to adapt where only the format is departed from:
"The financial statements have not been presented in the format prescribed by the ICAI Guidance Note on Financial Statements of Non-Corporate Entities, in that [describe]. [State the effect, or that there is no effect, on the figures reported.]"
Checklist for the file
- Which Note: entity type confirmed; LLP Note for an LLP; no statute, regulator or specific ICAI format that overrides.
- Which year: turnover tested against ₹5 crore for FY 2025-26, with the basis recorded.
- Which Standards: MSME or Large worked out, ₹50 crore and ₹10 crore limits checked for AS 18 and AS 28, two-year rule considered, MSME note drafted.
- Owners: movement for each owner in every column; drawings complete; remuneration and interest agree to the deed and the P&L; profit share percentages agree to the deed.
- LLP: agreed contribution agrees to the LLP agreement; Form 8 agrees to the statements; audit limits decision recorded.
- Receivables and payables: six-month split from the due date; unbilled shown; secured, unsecured and doubtful; MSMED interest details from Udyam data; any extra ageing a lender wants added.
- Borrowings: loans guaranteed by partners or the proprietor disclosed; secured and unsecured; repayment terms; current maturities separate.
- Comparatives: previous year regrouped into the same format, unless these are first statements.
- Report: any departure from the format disclosed and the opinion decision documented.
Try SignReady: Previous-year figures are included; the draft is for the firm to review and finalise.
Start freeFrequently asked questions
Is the ICAI format mandatory for partnership firms for FY 2025-26?
ICAI's announcement of 31 March 2026 applies the Guidance Note to periods beginning on or after 1 April 2025 for entities whose turnover exceeds ₹5 crore, and from 1 April 2026 to all entities. Guidance Notes are described by ICAI as recommendatory, but its FAQs say the Note prescribes the format and that an auditor must disclose non-compliance in the report.
Does the Guidance Note on Non-Corporate Entities apply to an LLP?
No. LLPs are scoped out of it. ICAI issued a separate Guidance Note on Financial Statements of Limited Liability Partnerships at the same time, in August 2023, and the same phased dates in the 31 March 2026 announcement apply to it.
Is an ageing schedule required for firms under the ICAI format?
The format has no Schedule III style ageing table. It requires trade receivables outstanding for more than six months from the due date to be stated separately, along with the secured, unsecured and doubtful split. An entity may add an ageing table if it is useful, for example for a lender.
What are the MSME limits for non-company entities under the ICAI announcement?
Not listed or in the process of listing; not a bank, financial institution or insurer; turnover excluding other income up to ₹250 crore and borrowings up to ₹50 crore in the preceding year; and not a holding or subsidiary of a non-MSME. These apply to accounting periods commencing on or after 1 April 2024. Other non-company entities are Large.
Is a cash flow statement required for a partnership firm or proprietor?
Only where AS 3 applies. AS 3 does not apply to a non-company MSME, so most firms and proprietors need not prepare one, though it is encouraged. A Large entity, for example one with preceding-year turnover above ₹250 crore, must prepare it.
What should the auditor do if the client refuses to use the Guidance Note format?
ICAI's FAQs on the non-corporate Note say the auditor is required to disclose the non-compliance in the report and use professional judgement on whether it results in a modified opinion under the Standards on Auditing. Document the discussion with the client and the reasoning for the opinion decision.
Sources
- ICAI: Guidance Note on Financial Statements of Non-Corporate Entities (August 2023, ICAI text with updated Appendix A)
- ICAI ASB: Applicability of the Guidance Notes on Financial Statements of Non-Corporate Entities and LLPs (31 March 2026)
- ICAI ASB: Relaxation in compliance with the Guidance Notes for annual reporting period 2024-25 (19 September 2025)
- ICAI: Revised Criteria for classification of Non-company entities for applicability of Accounting Standards (433rd Council meeting, August 2024)
- ICAI: Excel file of illustrative formats, Guidance Note on Financial Statements of Limited Liability Partnerships
- ICAI: List of Guidance Notes on accounting aspects (both Notes and their Excel files)
- ICAI: Exposure Draft of the Guidance Note on Financial Statements of LLPs (February 2023; wording of rule 24 summarised there)
- ICAI: Exposure Draft of Accounting Standards for Limited Liability Partnerships (7 February 2025; section 34A and the AS presently applicable to LLPs)
- ICAI: Clarification regarding authority attached to documents issued by the Institute, as amended (Appendix 1 to the AASB announcement of 19 August 2023)
- ICAI FAQs on the Guidance Note on Financial Statements of Non-Corporate Entities, as reproduced by TaxGuru (Questions 4, 5, 7 to 9)
- Limited Liability Partnership Act, 2008, section 34
- Limited Liability Partnership Act, 2008, section 34A (inserted by the Limited Liability Partnership (Amendment) Act, 2021)
- Limited Liability Partnership Rules, 2009, rule 24 and Form 8, as reproduced by IBC Laws (the MCA copy could not be opened)
- TaxGuru: LLP Form 8 due 30 October 2026 (commentary on rule 24(8) and the Form 8 kit)
- Companies Act, 2013, Schedule III, Division I, as amended
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Version history: 1 Nov 2026 — first published.
