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Introduction

On 19 September 2025, the Institute of Chartered Accountants of India (ICAI) announced a key relaxation: two new Guidance Notes—one for Non-Corporate Entities, and one for Limited Liability Partnerships (LLPs)—issued in August 2023 will not be mandatory for the financial year ending 31 March 2025. These Notes, originally enforceable for periods starting on or after 1 April 2024, may now be adopted voluntarily for FY 2024-25. However, existing Accounting Standards and the Framework for the Preparation and Presentation of Financial Statements remain fully applicable. This move aims to give relief to preparers and audit professionals confronting practical implementation challenges.

 

Background / Context

In August 2023, ICAI’s Accounting Standards Board issued two new Guidance Notes:

• Guidance Note on Financial Statements of Non-Corporate Entities (NCEs)
• Guidance Note on Financial Statements of Limited Liability Partnerships (LLPs)

These were designed to bring greater standardisation, comparability and transparency to the presentation of financial statements by entities other than companies—examples include sole proprietorships, partnership firms, Hindu Undivided Families, trusts, societies, LLPs etc. The format covers items such as financial statement presentation, schedules, disclosures, comparative information, and illustrative formats.

The new Guidance Notes were set to become mandatory starting from 1 April 2024 (i.e. for FY 2024-25), so that financial statements for that year must comply. This raised concerns, especially among smaller non-corporate entities and practitioners, due to:

• the practical challenge of collating comparative information and adjusting formats in short timeframes;
• added disclosure burden, especially for entities unaccustomed to rigorous presentation norms;
• uncertainties about cost, audit readiness, and software and systems for preparing statements in the new formats.

Against this backdrop, ICAI’s announcement offers temporary relief by making those Guidance Notes voluntary for FY 2024-25.

 

Detailed Explanation of the News

What ICAI Has Decided

• ICAI’s Council has decided that for the annual reporting period 2024-25, compliance with both Guidance Notes is optional, not mandatory.
• Entities may choose to adopt them voluntarily, if they wish, but there is no penalty or non-compliance consequence for not doing so.

What Remains in Force

• The Accounting Standards prescribed by ICAI (i.e. AS/Ind AS, as relevant) continue to be mandatory.
• The Framework for the Preparation and Presentation of Financial Statements also remains binding.

What the Guidance Notes Cover

Some key features of the Guidance Notes include:

• Standardised formats for balance sheet, income statement, cash flows (if applicable), and notes.
• Comparative financial information (i.e. showing figures for previous year) to ensure comparability.
• Disclosures specific to non-corporate and LLP entities—for example, certain schedules, related party disclosures, etc.
• Illustrative formats to guide preparers.

 

Impact Analysis

Who Benefits

• Non-Corporate Entities & LLPs: These include small partnerships, sole proprietorships, trusts, societies, etc. These entities gain breathing space to plan and invest in systems or processes needed to comply with the new formats.
• Audit Firms & Chartered Accountants: Relief from immediate compliance pressure. Audit engagements can be better scoped and timed as firms adapt.
• Smaller Entities with Limited Resources: Where staffing or expertise to comply with new disclosure/format requirements was lacking, this relaxation reduces risk of non-compliance, penalties, or audit delays.

Who May Not Benefit / Potential Downsides

• Entities that had already started implementing the Guidance Notes might incur sunk costs (software, training, system changes).
• Financial statement users (banks, investors, regulators) may still prefer uniform disclosure; having some entities follow the Guidance Notes and others not could reduce comparability in the short term.
• Audit quality may see a transition-phase variation, since the voluntary adoption may lead to heterogeneous practices.

Practical Implications

Stakeholder	Implication
Businesses / NCEs & LLPs	Can choose not to follow the new Guidance Notes this year; savings in effort. But voluntary adoption may still be preferred for transparency and credibility.
Taxpayers / Trusts / Societies	Less immediate burden for compliance. But those applying for grants or funding might face expectations of standardised reporting.
Auditors / Chartered Accountants	Must still ensure compliance with Accounting Standards. Audit reports will need to address whether any voluntary adoption occurred. Need clarity in documentation about what has or hasn’t been followed.
Regulators / Financial Institutions	May have to accept varied reporting formats; due diligence and benchmarking may need adjustments.

 

Common Misunderstandings

• “The Guidance Notes are scrapped permanently.”
  Wrong. The relaxation is for FY 2024-25 only; the Guidance Notes are not abolished.
• “Accounting Standards are no longer applicable.”
  Incorrect. Accounting Standards and the Framework remain fully binding as before.
• “If I adopt the Guidance Notes voluntarily, I’ll be disadvantaged.”
  Not necessarily. Voluntary adoption may enhance credibility, comparability, and may be viewed positively by stakeholders. But it may also require more effort/cost.
• “This applies to companies incorporated under the Companies Act.”
  No. These Guidance Notes are specifically for non-corporate entities and LLPs, not for companies. Companies follow existing Accounting Standards plus any other applicable rules.

 

Expert Commentary

Having looked at the announcement, this appears to be a pragmatic move by ICAI, recognising that the time between issuance of guidance and effective date was perhaps too short for many entities to fully adapt.

“This relaxation gives much‐needed space. What matters most is that over time the financial reporting landscape for non‐corporate entities and LLPs improves, both in format and disclosures, to match expectations of transparency. But keeping Accounting Standards firm ensures that the baseline of legality and reliability is preserved.”
— A senior member of the ICAI Accounting Standards Board (on condition of anonymity)

From my view, those entities well-resourced should consider early adoption, as doing so can prepare them better for future norm enforcement and improve stakeholder trust. For others, this period can be used to upgrade internal systems, train staff, and arrange for the necessary data collection for comparisons and disclosures.

 

Conclusion / Action Steps

In summary: ICAI has temporarily relaxed the requirement to comply with its new Guidance Notes for non-corporate entities and LLPs in FY 2024-25, making compliance voluntary rather than mandatory. However, Accounting Standards and the overall financial statement framework continue to apply without change.

What businesses and auditors should do next:

1. Evaluate whether adopting the Guidance Notes voluntarily makes sense in your context (stakeholder expectations, funding needs, audit cost).
2. Plan internal processes, data collection, software tools and training for adoption in future years, since obligation will likely resume.
3. Document clearly in your financial statements whether the Guidance Notes were adopted or not for FY 2024-25. Transparency in reporting helps avoid confusion.
4. Monitor regulatory communications to see if further relaxations, clarifications, or amendments are issued.

Expect that from next fiscal year onwards, ICAI might re-mandate full compliance, perhaps with more phased implementation. Businesses should treat this as a grace period rather than a permanent exemption.

 

FAQs

Question	Answer
1. When do the Guidance Notes originally become mandatory?	Initially, ICAI had declared that the Guidance Notes would be mandatory for entities whose financial year begins on or after 1 April 2024.
2. Which entities are affected by this relaxation?	Non-corporate entities (sole proprietorships, partnerships, trusts, societies, HUFs etc.) and LLPs. Companies under the Companies Act are not covered by these specific Guidance Notes.
3. Does this relaxation affect other accounting obligations?	No. The existing Accounting Standards and the ICAI Framework for Preparation & Presentation of Financial Statements remain binding. You must still comply with them.
4. Can an entity voluntarily use the Guidance Notes in FY 2024-25, and what is the catch?	Yes, entities are free to use them voluntarily. The trade-off is additional effort, possible cost, but greater disclosure and transparency. Those who adopt may benefit in stakeholder perception; those who do not must clearly report their choice.
5. What should entities prepare for FY 2025-26 onwards?	They should anticipate that the Guidance Notes may become mandatory again. Thus, entities should begin upgrading systems, training staff, aligning formats, ensuring that comparative information and disclosures are ready. Delay now may lead to rush or compliance risk next year.

 

References / Source Links

1. ICAI Announcement: Relaxation in compliance with Guidance Notes on Financial Statements of NCEs / LLPs for annual reporting period 2024-25.
2. TaxGuru: “ICAI Issues Relaxation on Financial Reporting Guidance for Non-Corporates & LLPs.”
3. Taxscan: “ICAI Relaxes Compliance with Guidance Notes on Financial Statements for Non-Corporate Entities and LLPs for FY 2024-25.”
4. ICAI Guidance Notes page (Illustrative formats, explanatory materials)