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Accounting Standard 1

Accounting Standard 1

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Published by: kamrantariq on Aug 11, 2009
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08/11/2009

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Statements of Accounting Standards (AS 1)Disclosure of Accounting Policies
The following is the text of the Accounting Standard (AS) 1 issuedby the Accounting Standards Board, the Institute of CharteredAccountants of India on 'Disclosure of Accounting Policies'. TheStandard deals with the disclosure of significant accountingpolicies followed in preparing and presenting financial statements.In the initial years, this accounting standard will berecommendatory in character. During this period, this standard isrecommended for use by companies listed on a recognised stockexchange and other large commercial, industrial and businessenterprises in the public and private sectors.
 
Introduction
1. This statement deals with the disclosure of significantaccounting policies followed in preparing and presentingfinancial statements.2. The view presented in the financial statements of an enterpriseof its state of affairs and of the profit or loss can besignificantly affected by the accounting policies followed in thepreparation and presentation of the financial statements. Theaccounting policies followed vary from enterprise to enterprise.Disclosure of significant accounting policies followed isnecessary if the view presented is to be properly appreciated.3. The disclosure of some of the accounting policies followed inthe preparation and presentation of the financial statements isrequired by law in some cases.4. The Institute of Chartered Accountants of India has, inStatements issued by it, recommended the disclosure of certain accounting policies, e.g., translation policies in respectof foreign currency items.
 
5. In recent years, a few enterprises in India have adoptedthe practice of including in their annual reports to shareholdersa separate statement of accounting policies followed inpreparing and presenting the financial statements.6. In general, however, accounting policies are not atpresent 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. Butthe nature and degree of disclosure vary considerably betweenthe corporate and the non-corporate sectors and between unitsin the same sector.7. Even among the few enterprises that presently include intheir annual reports a separate statement of accountingpolicies, considerable variation exists. The statement of accounting policies forms part of accounts in some cases whilein others it is given as supplementary information.8. The purpose of this Statement is to promote betterunderstanding of financial statements by establishing throughan accounting standard the disclosure of significant accountingpolicies and the manner in which accounting policies aredisclosed in the financial statements. Such disclosure wouldalso facilitate a more meaningful comparison between financialstatements of different enterprises.
ExplanationFundamental Accounting Assumptions
9. Certain fundamental accounting assumptions underlie thepreparation and presentation of financial statements. They areusually not specifically stated because their acceptance anduse are assumed. Disclosure is necessary if they are notfollowed.10. The following have been generally accepted as fundamentalaccounting assumptions:—
 
a. Going Concern
The enterprise is normally viewed as a going concern, that is,as continuing in operation for the foreseeable future. It isassumed that the enterprise has neither the intention nor thenecessity of liquidation or of curtailing materially the scale of the operations.
b. Consistency
It is assumed that accounting policies are consistent from oneperiod to another.
c. Accrual
Revenues and costs are accrued, that is, recognised as theyare earned or incurred (and not as money is received or paid)and recorded in the financial statements of the periods towhich they relate. (The considerations affecting the process of matching costs with revenues under the accrual assumptionare not dealt with in this Statement.)
Nature of Accounting Policies
11.The accounting policies refer to the specific accountingprinciples and the methods of applying those principlesadopted by the enterprise in the preparation and presentationof financial statements.12.There is no single list of accounting policies which areapplicable to all circumstances. The differing circumstances inwhich enterprises operate in a situation of diverse and complexeconomic activity make alternative accounting principles andmethods of applying those principles acceptable. The choice of the appropriate accounting principles and the methods of applying those principles in the specific circumstances of eachenterprise calls for considerable judgement by themanagement of the enterprise.

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