Accounting Standard : 1 Disclosure of Accounting Policies
Accounting Policy: Accounting policy refer to the specific accounting principles and the method of applying those principle adopted by the enterprises in the preparation and presentation of financial statements.
Accounting policy adopted by the enterprises may vary between enterprises to enterprises. Some areas are illustrated as follows:Treatment of goodwill, Retirement benefits, exp. during construction, Contingent liabilities, Valuation of inventories, investment, fixed assets, Method of deprecation, Conversion of foreign currency item,etc.
There are certain fundamental accounting assumption underline the preparation and presentation of financial statement:(a) Going Concern: The enterprises is normally viewed as going concern i.e. as continuing in operation for the foreseeable future. It is assumed that the enterprises has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations.(b) Consistency: It is assumed that accounting policy are consistent from one period to another period.(c) Accrual: Revenue and cost are accrued i.e. recognized as they are earned or incurred and recorded in the financial statement of the period to which they relate.
In the selection of accounting policies, the following need to be considered:(i) Prudence: Provide for all probable losses but do not recognize unrealized profit.(ii) Substance Over Form: The accounting treatment and presentation in the financial statement of transaction and events should be governed by their substance and not merely by the legal form.(iii) Materiality: Financial statement should disclose all material items i.e. items the knowledge of which might influence the decision of the user of financial statements.
Disclosure of Accounting Policies: • The disclosureshould form part of the financial statement and normally at one place. • Material effect due to changes in accounting policy should be disclosed. • Disclosure of accounting policies or of changes their in cannot remedy a wrong or inappropriate treatment. • If any fundamental accounting assumption does not followed, the fact should be disclosed.