AS1: Disclosure of Accounting Policies

AS 1 refers to the disclosure of accounting policies. It states that an enterprise needs to disclose significant accounting policies followed by it to prepare and present its financial statements.

This is because a business entity’s state of affairs gets significantly impacted by the accounting policies used in preparing its financial statements.

Typically, every enterprise follows accounting policies appropriate to its own business as well as industry. Thus, an enterprise mandatorily needs to disclose its significant accounting policies in order to present a true and fair view of its state of affairs.

Current Practices Followed in Disclosing the Accounting Policies

•  Disclosure Required by Law

Sometimes, law requires a business entity to disclose certain accounting policies followed by it in order to prepare and present financial statements. In such cases, the entity needs to necessarily disclose these accounting policies.

• Disclosure Required by ICAI

Institute of Chartered Accountants of India (ICAI)) has been issuing notifications over a period of time recommending disclosure of certain accounting policies.

Thus, an enterprise following such accounting policies while preparing its financial statements needs to disclose these policies necessarily.

For example, translation policies in respect of foreign currency items.

• Disclosure in Annual Reports to Shareholders

Few enterprises in India include a separate statement showcasing their accounting policies used to prepare their financial statements.

Thus, an enterprise can even include a separate statement reflecting its accounting policies. However, such a statement must be included in the annual reports to the shareholders of the enterprise.

• ·Disclosure of Accounting Policies not Fully Disclosed

It has been witnessed that the accounting policies at present are not disclosed in the financial statements regularly and fully.  Many enterprises prefer inserting descriptions pertaining to the important accounting policies in the notes to their financial statements.

The enterprises can follow such a practice. However, the nature and degree of such a disclosure varies immensely. It varies between corporate and non – corporate sectors as well as the units in the same sector.

• Disclosure in case of Enterprises including a Separate Statement of Accounts

A wide variation pertaining to the nature and degree of disclosure also exists. The variation exists especially among those enterprises that include a separate statement of accounting policies in their annual reports presently.

In such cases, there are few firms that include such a separate statement of accounting policies in their books of accounts. While others give such details in the form of supplementary information.

• Purpose of Disclosure of Accounting Policies

The very purpose behind giving a statement of accounting policies is to encourage better understanding of the financial statements. Further, it also helps in facilitating more meaningful comparison between financial statements of various companies.

Thus, a separate accounting standard on Disclosure has been established to achieve these objectives. This accounting standard promotes the disclosure of accounting policies. Further, it also describes the manner in which such accounting policies need to be disclosed in the financial statements.

Is there a Need to Disclose Fundamental Accounting Assumptions?

Usually, an enterprise need not specifically state or disclose the fundamental accounting assumptions followed in preparing its financial statements.

However, it needs to disclose such assumptions only if it fails to follow them while preparing its financial statements.