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AS 1: Disclosure of accounting policies (principles) - Coggle Diagram
AS 1: Disclosure of accounting policies (principles)
Definition of Accounting Policies
Accounting Policies
: Specific principles and methods adopted for financial statement preparation and presentation.
Example
: Inventory valuation - cost or net realisable value using FIFO, LIFO, WAC, or other methods.
Importance of Following Principles
Understanding
: Enhances clarity and comprehension.
Uniformity
: Facilitates interfirm comparison.
Regulatory Compliance
: Aligns with legal and regulatory requirements.
Objectives of Disclosing Accounting Policies
Promote Understanding
: Clarifies financial statement analysis.
Uniformity and Disclosure
: Ensures consistency across enterprises.
Standard Implementation
: Encourages adherence to accounting standards.
Interfirm Comparison
: Aids in comparative analysis.
Compliance
: Ensures legal and ICAI requirement fulfillment.
Fundamental Accounting Assumptions
Going Concern
: Assumes enterprise continuation into the foreseeable future.
Accrual Method
: Recognizes transactions when they occur, not upon cash flow.
Consistency
: Maintains uniform accounting policies over periods.
Disclosure Requirements
Assumption Adherence
: No disclosure needed if fundamental assumptions are followed.
Non-Adherence
: Disclosure necessary if fundamental assumptions are not observed.
Areas of Alternate Accounting Policies
Depreciation methods (AS 6)
Foreign currency translation (AS 11)
Profit on long-term contracts
Expenditure during construction
Goodwill treatment (AS 26)
Retirement benefits (AS 15)
Contingent liabilities (AS 29)
Inventory valuation (AS 2)
Investment valuation (AS 13)
Fixed assets valuation (AS 10)
Major Considerations for Accounting Policies
Materiality
: Discloses significant items influencing user decisions.
Conservatism/Prudence
: Accounts for future liabilities/losses under uncertainty.
Substance Over Form
: Reflects economic substance over legal form.
Changes in Accounting Policies
Conditions for Change
:
Statutory requirements or accounting standard compliance.
Improved financial statement presentation.
Disclosure of Changes
:
Must disclose any policy changes affecting financial statements.
Quantify the financial impact if ascertainable.