AS 1: Disclosure of Accounting Policies
The Accounting Policies are vary from enterprise to enterprise. The purpose of Accounting Standard 1:Disclosure of Accounting Policies, is to promote a better understanding of financial statements by requiring disclosure of significant accounting policies in an orderly manner. Such disclosure facilitates a more meaningful comparison between financial statements of different enterprises.
Fundamental Accounting Assumptions
The financial statements are normally prepared on the assumption that an enterprise will continue its operations in the foreseeable future and neither there is an intention, nor there is need to materially curtail the scale of operations.
The practice of using same accounting policies for similar transactions in all accounting periods. The consistency improves comparability of financial statements through time. An accounting policy can be changed if the change is required
- by a statute.
- by an accounting standard.
- for a more appropriate presentation of financial statements.
Transactions are recognized as soon as they occur, whether or not cash or cash equivalent is actually received or paid and recorded in the financial statements of the periods to which they relate.
Accounting policies are the specific accounting principles and the methods of applying those principles adopted by the enterprise in the preparation and presentation of financial statements.
- Methods of depreciation.
- Valuation of inventories.
- Valuation of Investment.
- Translation of foreign currency items.
- Valuation of fixed assets.
- Treatment of retirement benefits.
- Treatment of goodwill.
- Treatment of expenditure during construction.
- Treatment of contingent liabilities.
- Recognition of profit on long term contracts.
Points to be considered for the selection of accounting policies
- Prudence: According to this concepts all anticipated losses should be recognized immediately, but not anticipated profits.
- Substance over form : The accounting treatment and presentation of transactions and events in financial statements should be governed by their substance and not merely by the legal form.
- Materiality : Financial statements should disclose all material items which influence the decision of users of the financial statements.
Disclosure Requirements under AS 1
- All significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed.
- 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 a later period should be disclosed.
- If the fundamental accounting assumptions, viz. going concern, consistency and accrual are followed in financial statements, a specific disclosure is not required. If a fundamental accounting assumption is not followed, the fact should be disclosed.