Accounting Standard (AS) 1
Disclosure of Accounting
Policies#
(This Accounting Standard includes paragraphs set in bold italic type
and plain type, which have equal authority. Paragraphs in bold italic type
indicate the main principles. This Accounting Standard should be read in the
context of the General Instructions contained in part A of the Annexure to the
Notification.) Introduction 1. This Standard deals with the disclosure of
significant accounting policies followed in preparing and presenting financial
statements. 2. The view presented in the financial statements of an enterprise
of its state of affairs and of the profit or loss can be significantly affected
by the accounting policies followed in the preparation and presentation of the
financial statements. The accounting policies followed vary from enterprise to
enterprise. Disclosure of significant accounting policies followed is necessary
if the view presented is to be properly appreciated. 3. The disclosure of some
of the accounting policies followed in the preparation and presentation of the
financial statements is required by law in some cases. 4. The Institute of
Chartered Accountants of India has, in Standard issued by it, recommended the
disclosure of certain accounting policies, e.g., translation policies in
respect of foreign currency items. 5. In recent years, a few enterprises in
India have adopted the practice of including in their annual reports to
shareholders a separate statement of accounting policies followed in preparing
and presenting the financial statements. 6. In general, however, accounting
policies are not at present regularly and fully disclosed in all financial
statements. Many enterprises include in the Notes on the Accounts, descriptions
of some of the significant accounting policies. But the nature and degree of
disclosure vary considerably between the corporate and the non-corporate
sectors and between units in the same sector. 7. Even among the few enterprises
that presently include in their annual reports a separate statement of
accounting policies, considerable variation exists. The statement of accounting
policies forms part of accounts in some cases while in others it is given as
supplementary information. 8. The purpose of this Standard is to promote better
understanding of financial statements by establishing through an accounting
standard the disclosure of significant accounting policies and the manner in
which accounting policies are disclosed in the financial statements. Such
disclosure would also facilitate a more meaningful comparison # This AS was
notified vide Notification G.S.R. 739(E) dated 07th December, 2006. 3 between
financial statements of different enterprises. Explanation Fundamental
Accounting Assumptions 9. Certain fundamental accounting assumptions underlie
the preparation and presentation of financial statements. They are usually not
specifically stated because their acceptance and use are assumed. Disclosure is
necessary if they are not followed. 10. The following have been generally
accepted as fundamental accounting assumptions:— a. Going Concern The
enterprise is normally viewed as a going concern, that is, as continuing in
operation for the foreseeable future. It is assumed that the enterprise has
neither the intention nor the necessity of liquidation or of curtailing materially
the scale of the operations. b. Consistency It is assumed that 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) and recorded in the financial statements of the
periods to which they relate. (The considerations affecting the process of
matching costs with revenues under the accrual assumption are not dealt with in
this Standard)
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