AS -1DISCLOSURE OF ACCOUNTING POLICIES

• Accounting polices refer to those PRINCIPLES AND METHODS applied in the preparation and of FIANCIAL STATEMENTS.

• They promote the better understanding of the financial statements and their true and fair presentation.

• The state of affairs and P&L are significantly affected by accounting policies hence their disclosure is necessary for better understanding.

Selection of Accounting policies• The is no pre-quoted list of accounting polices

applicable in all circumstances.• The suitability of the policies varies from entity to

entity.• The choice of accounting polices and their

application is the responsibility of the management. For, the responsibility for preparation and presentation of the financial statements is on the management.

The ICAI has recommended the following considerations to be taken on notice for the selection of the policies.

Considerations:

Prudence Substance over form Materiality

Prudence

• In view of unanticipated future events, if any loss or a liability is bound to arise a proper Provisions are to be created in the current period.

• No such treatment is necessary for any anticipated profits for Prudence is only in case of losses/liabilities, profits are recognized only when they arise.

Substance Over Form• The accounting treatment has to be according to

the SUBSTANCE of the transaction but not merely on its legal form.

Ex: In a hire purchase the asset is shown in books of the vendor rather than the vendee, who is the legal owner of the asset. This treatment is due to complying with substance over form.

Materiality

• The power to influence the decision making ability of the users of the financial statements is called as materiality.

• Material items are those, the knowledge of which might influence the decision of users to the financial statements.

• But in most cases it depends on judgment of the person.

Fundamental Accounting Assumptions

Going concern

It is assumed that the company has no

current thoughts of liquidating. It also plans

to continue its operations for a

considerable period in future.

It is assumed that the company follows the

same accounting principles ever year in

preparation of the financial statements. It means the policies are followed consistently

not only in the current period but also from one

period to another

Consistency Accrual

It is assumed that the company records

all revenues and costs when they

have accrued.

• The fundamental accounting policies are pre-assumed to have been followed and are only to be disclosed if there have been any changes in the them as compared to the previous years.

Ex: If the company has recently changed it’s methods in valuation of inventories, then such matter is to be disclosed as it affects the fundamental assumption Consistency.

Note:

• To ensure proper understanding of the financial statements.• Such disclosure should form part of the financial statements• All of the disclosures must be made at one place instead of being

scattered over several statements.• Any change in the accounting policies which is ought to affect the entity

in the future, even such matters are to be disclosed.• The affect of such matters has to be disclosed monetarily, if not possible

then the fact has to be mentioned in the note.

Note: Disclosure of the accounting policies is not an excuse for the wrong treatment in the accounts.

Disclosure requirements

Thank You