Accounting Standard 1

ACCOUNTING STANDARD 1
DISCLOSURES OF ACCOUNTING POLICIES
1. Accounting Policies:
“Accounting Policy” refers to
- the specific accounting principles and
- methods of applying those principles
adopted by the enterprise in the preparation and presentation of financial
statements.

2. Fundamental Accounting Assumptions:

Fundamental Accounting
Assumptions

Going Concern Consistency Accrual

Fundamental Accounting Assumptions

If followed If not followed

Not required to be Disclosure required in

disclosed financial statements

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Going concern:
The enterprise is normally viewed as a going concern. It means enterprise
- is continuing in operation for the foreseeable future.
- has neither the intention nor the necessity of liquidation or
- has no intention for curtailing materially the scale of the operations.

Consistency:
It means same accounting policies are followed from one period to another.
An accounting policy can be changed if the change is required
(i) by a statute
(ii) by an accounting standard
(iii) for more appropriate presentation of financial statements.

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 the periods to which they relate.

3. Selections of Accounting Policies:

Selections of Accounting Policies

Primary
Consideration Major Consdierations

True and fair Prudence Substance Materiality

view Over Form

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Primary Consideration:
The financial statements should be prepared the basis of such accounting
policies which represent a true and fair view of the performance and state
of affairs of an enterprise.

Major Considerations:
Prudence:
Due to uncertainty attached to future events, Profits are notanticipated
but recognised only when realised.
Provision is made for all known liabilities and losses even though the amount
cannot be determined with certainty.
The exercise of prudence in selection of accounting policies ensure that
(i) profits are not overstated
(ii) losses are not understated
(iii) assets are not overstated and
(iv) liabilities are not understated.

Substance over Form:

The accounting treatment should be governed by theirsubstance (actual
happening and economic reality) of the transaction and not merely by the
legal form.

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.
The term materiality is the subjective term. It is on the judgement, common
sense and discretion of the accountant that which item is material and which
is not.

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4. Manner of disclosure:
1. All significant accounting policies adopted in the preparation and
presentation of financial statements should be disclosed.
2. The disclosure of the significant accounting policies as such should form
part of the financial statements and should normally be disclosed in
one place.
Note: Disclosure of accounting policies cannot remedy a wrong or
inappropriate treatment in the accounts

5. Disclosure of Changes in Accounting Policies :

Any change in accounting policies which has a material effect in the current
period or in later periods should be disclosed.
In the case of a change in accounting policies which have a material effect
in the period, the amount by which any item is affected by such change
should also be disclosed to the extent ascertainable and if amount is not
ascertainable, the fact should be indicated.

Change in Accounting Policy

Material effect in the Expected to have a material

current period effect in a later period

Amount not Fact of such change to be

Amount ascertained disclosed in currrent period.
ascertained

Amount to be
disclosed Face to be disclosed

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