Cash Flow Statement Exemption: 2026 Companies Act Rules

A surprising number of CAIIB candidates lose marks on who must prepare a cash flow statement. 📉 The exemption list and the small-company threshold that drives it were both updated, and a new Ind AS-7 disclosure has been added.

This verified 2026 update sets out the cash flow statement exemption, the current small-company threshold, the Ind AS-7 supplier-finance disclosures and the governing statute — each with a table and an exam-style test.

📄 Who is exempt from a cash flow statement

Under the Companies (Accounts) Rules read with the Companies Act, 2013, four categories need not prepare a cash flow statement as part of their financial statements.

📌 The old test you may have memorised — a Rs 50 crore turnover / Rs 25 crore borrowings rule — is stale. Exemption now flows from the small-company definition.

Why does the exemption exist at all? The cash flow statement is the most demanding of the three financial statements to prepare, tracing every movement of cash across operating, investing and financing activities and reconciling it to opening and closing balances. For a one-person company or a genuinely small business, the cost of producing it outweighs the benefit to the few users who read it, so the law lifts the requirement. A banker reading such accounts should treat the lawful absence of a cash flow statement as normal for these entities, not as a warning sign, and rely instead on the profit-and-loss account and balance sheet to judge liquidity.

🏢 The small-company threshold

The small-company threshold was raised again, with effect from 1 December 2025.

Both limits must be satisfied. This is a steep rise from the Rs 4 crore / Rs 40 crore (2022) figure, which itself replaced Rs 2 crore / Rs 20 crore — so a much larger pool of companies is now "small" and therefore exempt from the cash flow statement.

The threshold matters far beyond the cash flow statement. Small-company status also brings a lighter penalty regime, fewer board-meeting requirements, an abridged annual return and relief from the mandatory rotation of auditors. Crucially, the company must remain within both the capital and the turnover limit; cross either one in a financial year and it loses small-company status, picking up the full slate of compliance — including the cash flow statement — from that year. For an exam answer, quote both figures together and tie them to the 1 December 2025 effective date, because a partial answer (turnover only) is the most common way candidates drop the mark.

🔗 Ind AS-7 supplier-finance disclosures

For companies that do prepare Ind AS financials, a new disclosure was added to the cash-flow standard itself. Ind AS-7 paragraphs 44F-44H require disclosure of supplier finance arrangements (reverse factoring), introduced by the Companies (Indian Accounting Standards) Second Amendment Rules, 2025 (notified 13 August 2025).

It is effective for annual periods beginning on or after 1 April 2025, and aims to show the liquidity risk these arrangements can hide. A stale claim of a 9 September 2024 notification should be ignored.

Supplier finance — often called reverse factoring — lets a company stretch its payment terms while its suppliers are paid early by a bank, which can flatter working-capital ratios and disguise what is effectively borrowing. The new paragraphs 44F to 44H require disclosure of the terms, the carrying amounts of such liabilities, the range of payment due dates and the resulting liquidity-risk exposure, so a reader can see the true position. For a banker assessing a borrower, this disclosure is a valuable early-warning signal of hidden leverage on an otherwise healthy-looking balance sheet.

📜 The governing statute

Underpinning all of this, joint-stock companies in India are governed by the Companies Act, 2013 (in force), which consolidated and replaced the repealed Companies Act, 1956. Any answer still citing the 1956 Act for accounts or share-capital provisions is wrong.

For accounting standards, listed and larger companies follow Ind AS; others follow Accounting Standards, with the cash flow statement governed by AS-3 or Ind AS-7 respectively.

🧾 Exam-ready summary

One-glance revision of the cash flow statement rules:

Lock the small-company figures in — they decide both the cash flow exemption and several other reliefs across the syllabus.

📝 Test yourself: 10 questions (online test mode)

Test your grip on the cash flow statement exemption and thresholds. Answer all ten, then submit.

❓ Frequently Asked Questions

✅ Final Word

The cash flow statement exemption now turns on the updated small-company line — Rs 10 crore paid-up and Rs 100 crore turnover — alongside OPC, dormant and start-up companies, with the new Ind AS-7 supplier-finance disclosure for those on Ind AS. Confirm the thresholds on mca.gov.in. 🎯 Take a free CAIIB mock test to lock them in.