ACCOUNTING STANDARD - 1
Disclosure of Accounting
Policies (Issued in 1979)
INTRODUCTION
(PARA 1-8)
The Accounting Standard (AS) are issued by the
Accounting Standards Board, the Institute of Chartered
Accountants of India
The AS 1 deals with the disclosure of significant
accounting policies followed in preparing and
presenting financial statements.
This standard is recommended for use by companies
listed on a recognised stock exchange and other large
commercial, industrial and business enterprises in the
public and private sectors.
INTRODUCTION CONTD..
Rationale behind AS 1
- Accounting policies followed affect the view of state of
affairs and of profit or loss presented in the financial
statements of an enterprise.
-The accounting policies followed vary from enterprise to
enterprise.
- Also such disclosure would facilitate a more meaningful
comparison between financial statements of different
enterprises.
ASSUMPTIONS
(PARA 9 -10)
a. Going Concern
- The enterprise is viewed as a going concern, that is, as
continuing in operation for the foreseeable future.
b. Consistency
- Accounting policies are consistent from one period to
another.
c. Accrual
- Revenues and costs are accrued, that is, recognised as they
are earned or incurred (and not as money is received or paid)
NATURE OF ACCOUNTING POLICIES
(PARA 11 -13)
The accounting policies refer to the specific accounting
principles and the methods of applying those principles
adopted by the enterprise in the preparation and
presentation of financial statements.
Management of an enterprise may use appropriate
accounting principles and the methods of applying those
principles in the specific circumstances .
The ICAI along with government and other regulatory
agencies and progressive managements are trying to
reduce the number of acceptable alternatives particularly
in the case of corporate enterprises.
ACCOUNTING POLICIES CAN BE DIFFERENT IN*
(PARA 14 -15)
• Methods of depreciation, depletion and amortisation
• Treatment of expenditure during construction
• Conversion or translation of foreign currency items
• Valuation of inventories
• Treatment of goodwill
• Valuation of investments
• Treatment of retirement benefits
• Recognition of profit on long-term contracts
• Valuation of fixed assets
• Treatment of contingent liabilities.
* This list is not exhaustive
CONSIDERATIONS IN THE SELECTION OF
ACCOUNTING POLICIES
(PARA 16-17)
Financial Statements should represent a true and fair view of the state of
affairs of the enterprise as at the balance sheet date and of the profit or loss
for the period ended on that date.
Considerations
a. Prudence
- Profits are not anticipated but recognised only when realised
- Provision is made for all known liabilities and losses even though the amount
cannot be determined with certainty .
b. Substance over Form
The accounting treatment and presentation in financial statements of transactions
and events should be governed by their substance and not merely by the legal form.
c. Materiality
Financial statements should disclose all “material” items, i.e. items the knowledge of
which might influence the decisions of the user of the financial statements.
DISCLOSURE OF ACCOUNTING POLICIES
(PARA 18 -23)
All significant accounting policies adopted in the preparation and presentation of financial
statements should be disclosed as a part of financial statements preferably at one place .
Examples of matters in respect of which disclosure of accounting policies adopted will be
required are contained in paragraph 14 (Areas where different accounting policies may be
adopted by different enterprises) .
Any change in an accounting policy which has a material effect should be disclosed.
- Amount by which any item is affected by such change should be disclosed to the extent
ascertainable.
-If amount is not ascertainable, wholly or in part, the fact should be indicated.
- If a change made has no material effect for the current period but which is expected to
have a material effect in later periods, the fact of such change should be appropriately
disclosed in the period in which the change is adopted.
Disclosure of accounting policies or of changes therein cannot remedy a wrong or
inappropriate treatment of the item in the accounts.
ACCOUNTING STANDARD -1
(PARA 24-27)
All significant accounting policies adopted in the preparation and presentation of
financial statements should be disclosed.
The disclosure of the significant accounting policies as such should form part of the
financial statements and the significant accounting policies should normally be
disclosed in one place.
Any change in the accounting policies which has a material effect in the current period
or which is reasonably expected to have a material effect in later periods should be
disclosed. In the case of a change in accounting policies which has a material effect in
the current period, the amount by which any item in the financial statements is affected
by such change should also be disclosed to the extent ascertainable. Where such
amount is not ascertainable, wholly or in part, the fact should be indicated.
If the fundamental accounting assumptions, viz. Going Concern, Consistency and
Accrual are followed in financial statements, specific disclosure is not required. If a
fundamental accounting assumption is not followed, the fact should be disclosed.
