AS - 1

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DISCLOSURE OF ACCOUNTING POLICIES {AS – 1} What are Accounting Policies ? Accounting Policies refers to specific accounting principles and the method of applying those principles adopting by the enterprises in preparation and presentation of financial statements. At the time of preparation of financial statements {Balance Sheet, Profit & Loss Accounts}, there are many areas, which have more than one method of accounting treatment such as: Methods of Depreciation: - Straight Line Method, WDV Method Conversion or Translation of foreign Currency item: - Average Rate, TT buying Rate Valuation of Inventories: - FIFO, Weighted Average, Standard Cost, Retail Method D. Valuation of Investments

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Treatment of Retirement Benefits Valuation of Fixed Assets Treatment of Contingent Liabilities Hence accounting policies contains the information about the method for the preparation of financial statements. Statements of accounting policies are part of financial statements. What are Notes to Accounts ? Notes to Accounts are the explanation of the management about the items in the financial statements. The management gives more explanation and information about the items of profit and loss and balance sheet and any other items, by way of notes to accounts. Example: 1. Disclosure of details of contingent liability by notes to accounts. 2. Disclosure of litigation about the claim recoverable, loan receivable etc. Notes to accounts are integral part of financial statement.

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Need for disclosure of Accounting Policies: For proper and better understanding of financial statement, it is required that all significant accounting policies followed in preparation of financial statement should be disclosed. Because assets and liabilities in balance sheet and profit and loss account are significantly affected by accounting policies followed. All significant accounting policies should be disclosed at one place because it would be helpful to the reader of financial statement. Fundamental Accounting Assumptions: Going Concern – It means enterprise had intention for continuing the operation in foreseeable future. Foreseeable means coming one or two year In other words, neither there is intention of discontinuance of business, nor necessity of liquidation of organization or discontinuance of major operations of the business. Consistency – It means that same accounting policies are followed for one period to another. Accrual – It means that financial statement is prepared on mercantile system only.

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Other accounting assumption like business entity, money measurement, matching are not fundamental accounting assumptions as per this accounting standard. Major point which are considered for the purpose of selection and application of accounting policies Prudence – Generally maker of financial statement has to face uncertainties at the time of preparation of financial statement. These uncertainties may be regarding collectability of receivables, number of warrants claims that may occur. Prudence means making of estimates, which is required under conditions of uncertainty. Substance over form – It means that transaction should be accounted for in accordance with actual happening and economic reality of the transactions not by its legal form. Like in hire purchase if the assets are shown in the books of hire purchase by the hire purchaser the assets are shown in the books of hire purchaser, in spite of the fact that the hire purchase the purchaser, becomes the owner only on the payment of last installment. Therefore the legal form of the transaction is ignored and the transaction is accounted as per its substance.

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Materiality – Financial Statements should disclose all the items and facts which are sufficient enough to influence the decision of readers or / user of financial statement. Changes in Accounting Policies Adoptation of different accounting policies is required by statue or for compliance with an Accounting Standard. It is considered that changes would result in more appropriate presentation of financial statement. If there is any change in accounting policies in preparation of financial statement from one period to subsequent period, & such change affect the status of affairs of balance sheet and profit and loss account of current period or such change affects the financial statement of later period, then such change affects the financial statements. The amount, by which the financial statement is affected should be disclosed to the extent ascertainable.

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Significant difference between IAS / IFRS & AS – 1 IFRS / IAS – 1 deals with overall considerations including fair presentation off-setting and comparative information, where as AS – 1 does not deal with these aspects. IFRS / IAS – 1 prescribes minimum structure of financial statements and contains guidance on related issues viz current liabilities whereas AS – 1 does not prescribed any minimum structures. Under IFRS / IAS – 1 financial statements includes statements showing changes in equity whereas, AS – 1 does not prescribes any such statement to be prepared. Under IFRS / IAS – 1 there is a presumption that application of IFRS would lead to fair presentation. There is no such presumption under AS – 1. IFRS / AS – 1 requires disclosure of critical judgments made by the management in applying accounting policies whereas there is no specific disclosure requirement in AS – 1.

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IFRS / IAS – 1 requires specific disclosures for departures from IFRS, whereas there is no such specific provision in AS – 1. AS per IAS – 1 the components of financial statements are 1. A balance sheet 2. An income statement 3. A statement of changes in equity showing either all changes in equity; or changes in equity other than those arising from transaction with equity holders acting in their capacity as equity holders; cash flow statement; and 4. Notes comprising a summary of significant accounting policies and other explanatory notes.

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AS -1 at a glance OBJECTIVE To promote better understanding of financial statements by establishing the disclosure of significant accounting policies. NEED Alternatively accounting principles & methods of applying them exists. CONSIDERATION Ensure true & fair view by Prudence Substance over form Materiality Fundamental Accounting Assumptions Going concern Consistency Accrual Disclosures All significant accounting policies Change in accounting policy having material effect along with effect of change Facts of non-disclosure of fundamental accounting assumptions, if any. Principles & methods of applying such principles Examples Valuation of inventory, Goodwill Depreciation methods, etc,.

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If you really want to judge of the character of a man, look not at his great performance. Every fool may become a hero at one time or another. Watch a man do his most common actions; those are indeed the things which will tell you the real character of a great man. SWAMI VIVEKANANDA