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Introduction
1. This statement dealswith 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.
1 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which
Accounting Standards are intended to apply only to items which are material.
2 It may be noted that this Accounting Standard is now mandatory. Reference may
be made to the section titled ‘Announcements of the Council regarding status of
various documents issued by the Institute of Chartered Accountants of India’
appearing at the beginning of this Compendium for a detailed discussion on the
implications of the mandatory status of an accounting standard.
Disclosure of Accounting Policies 41
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 ofCharteredAccountants of India has, in Statements 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 Statement 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 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.
42 AS 1 (issued 1979)
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 curtailingmaterially
the scale of the operations.
b. Consistency
It is assumed that accounting policies are consistent fromone period to another.
c. Accrual
Introduction
1. This statement dealswith 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.
1 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which
Accounting Standards are intended to apply only to items which are material.
2 It may be noted that this Accounting Standard is now mandatory. Reference may
be made to the section titled ‘Announcements of the Council regarding status of
various documents issued by the Institute of Chartered Accountants of India’
appearing at the beginning of this Compendium for a detailed discussion on the
implications of the mandatory status of an accounting standard.
Disclosure of Accounting Policies 41
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 ofCharteredAccountants of India has, in Statements 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 Statement 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 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.
42 AS 1 (issued 1979)
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 curtailingmaterially
the scale of the operations.
b. Consistency
It is assumed that accounting policies are consistent fromone period to another.
c. Accrual