Advanced Accounting · AS 1 Disclosure of Accounting Policies

AS 1: Disclosure of Accounting Policies and Changes in Policies

Updated 4 October 2026 · Fact-checked

AS 1 requires an entity to disclose all significant accounting policies in one place, as part of the financial statements. If a policy changes and the change has a material effect in the current period or later periods, you disclose the change, its amount (or state that it is not ascertainable), and the reason.

Understand Disclosure of Accounting Policies and Changes in Policies

Accounting policies are the specific principles and methods an entity adopts to prepare and present financial statements. Examples are the inventory cost formula, the depreciation method and how revenue is recognised. Two entities with the same facts can show different profits if their policies differ. So readers must be told which policies were used.

AS 1 therefore says that all significant accounting policies must be disclosed. They should be disclosed in one place, usually as a note headed "Significant Accounting Policies" at the start of the notes. This is not scattered across the notes. The disclosure is part of the financial statements, not a separate page.

Policies change for two reasons: a law or accounting standard requires it, or the change gives a more appropriate presentation of the entity's results and position. Adopting a policy for transactions that differ in substance from earlier ones, or for events that did not occur earlier, is not a change in accounting policy.

When a change has a material effect in the current period, you must disclose the change and the amount by which any item in the financial statements is affected, to the extent ascertainable. If the amount is not ascertainable, wholly or in part, say so. If the change has no material effect now but is reasonably expected to have a material effect in later periods, you disclose the fact of the change in the period it is adopted.

Also remember the link to fundamental assumptions. If a fundamental assumption (going concern, consistency, accrual) is not followed, that fact must be disclosed. Otherwise, it is assumed they are followed and no disclosure is needed.

Key rules to remember

Where to disclose policies: All significant accounting policies → one place, as part of the financial statements; Usually the first note in the notes to accounts.
Change with material effect in current period: Disclose: (1) the change, (2) the reason for the change, (3) amount of effect on items, to extent ascertainable, (4) say so if the amount is not ascertainable; Applies to a change in policy that materially affects the current period.
Change with no material effect now, but expected later: Disclose the fact of the change in the current period; Applies when the effect is reasonably expected to be material in later periods.
Fundamental assumptions: Going concern, consistency, accrual: disclosure only if NOT followed; If followed, disclosure is not required.
Three considerations in choosing policies: Prudence, substance over form, materiality; Policies should represent a true and fair view.

How to solve Disclosure of Accounting Policies and Changes in Policies questions

Use this method for any AS 1 disclosure question, theory or numerical.

1Identify whether the question is about disclosing policies in general or about a change in a policy.
2If it is a change, decide if it is a real change in policy. Adopting a policy for transactions that differ in substance from earlier ones, or for events that did not occur earlier, is not a change.
3Check why the change was made: required by law or a standard, or to present the results more appropriately.
4Compute the effect of the change on the relevant item, for example profit, closing stock or asset value, for the current period.
5Decide materiality. If material now, disclose the change, the amount and the reason. If not material now but likely later, disclose the fact of the change.
6If the amount cannot be worked out, state that the effect is not ascertainable.
7Write the disclosure as a note in the financial statements, and keep the policies together in one note.
8Conclude with the AS 1 requirement you applied.

Quickest way: Three-question check for change in policy

When to use it: Use this for MCQs and for short written parts when time is tight.

Q1: Is it a genuine change in policy? Policies for transactions that differ in substance from earlier ones, or for events that did not occur earlier, are not changes. If it is not a change, no AS 1 change disclosure.
Q2: Is the effect material in the current period? If yes, disclose the change, the amount (or not ascertainable) and the reason.
Q3: If not material now, is it expected to be material later? If yes, disclose the fact of the change.
For MCQs, eliminate options that say policies may be scattered, or that disclosure is optional when the effect is material.
For written answers, use three lines: provision, facts with figures, conclusion. This earns step marks.

Common mistakes in Disclosure of Accounting Policies and Changes in Policies

Treating a new policy for a new kind of transaction as a change in accounting policy.
Students see the word "new" and assume a change.
Fix: A change means a different policy for the same kind of transaction. A policy adopted for transactions that differ in substance from earlier ones, or for events that did not occur earlier, is not a change.
Omitting the amount of the effect.
Students write only that the policy changed.
Fix: Always give the amount affected, or state that it is not ascertainable.
Not disclosing a change that is immaterial now but expected to be material later.
Students focus only on the current period.
Fix: Disclose the fact of the change in the period of the change when later effects are reasonably expected to be material.
Disclosing policies in different notes.
Students tie each policy to its own note.
Fix: AS 1 asks for all significant policies in one place.
Disclosing the fundamental assumptions always.
Students think more disclosure is safer.
Fix: Disclose them only if they are not followed.

Worked examples

Example 1

A company changes its inventory valuation from FIFO to weighted average in the current year. The change is made to present results more appropriately. Because of the change, closing stock is lower by ₹2,50,000 and profit is lower by the same amount. Profit before the change was ₹30,00,000. Assume opening stock is unaffected by the change. Explain the disclosure under AS 1 and state the adjusted profit.

Show the solution

The change is from one cost formula to another for the same inventory, so it is a genuine change in accounting policy.
Assumption: opening stock is unaffected, so the whole closing stock difference reduces current-year profit.
Profit after the change = ₹30,00,000 − ₹2,50,000 = ₹27,50,000.
The effect is ₹2,50,000, which is 8.33% of the earlier profit (2,50,000 ÷ 30,00,000 × 100). Materiality is a matter of judgement. Here 8.33% is taken as material, for illustration.
Material in the current period means disclose the change, the amount of the effect and the reason.
Reason: to present results more appropriately.

Answer: Disclose in the notes that the inventory cost formula changed from FIFO to weighted average to present results more appropriately, and that closing stock and profit for the year are lower by ₹2,50,000. Profit is ₹27,50,000 after the change (assuming opening stock is unaffected).

Example 2

A company changes its depreciation method this year. The effect on current-year profit is not material, but the management expects a material effect in the following years. Can the company skip disclosure? Also, can it skip disclosure if the amount cannot be quantified?

Show the solution

The change is a genuine change in policy.
The current-year effect is not material, but a material effect is reasonably expected later.
AS 1 then requires the fact of the change to be disclosed in the current period.
If the effect on the current period is material but cannot be quantified fully or partly, the company must still disclose the change and state that the amount is not ascertainable.

Answer: No. In the first case it must disclose the fact of the change in the current year. In the second case, it must still disclose the change and state that the amount is not ascertainable.

Exam tips

Write the three disclosure parts for a change: the change, the amount, the reason.
In practical questions, compute the effect on profit first, then judge materiality and write the note.
Remember the two exceptions: not ascertainable, and not material now but expected later.
Do not confuse AS 1 change disclosure with AS 5 treatment of the effect of a change in policy. Read the question for the standard asked.
For MCQs, look for "one place" and "only if not followed" as the key phrases.

Practice questions from AS 1 Disclosure of Accounting Policies

Disclosure of Accounting Policies and Changes in Policies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Disclosure of Accounting Policies and Changes in Policies: frequently asked questions

Where should accounting policies be disclosed under AS 1?

All significant accounting policies should be disclosed in one place, as part of the financial statements. In practice this is the first note, headed Significant Accounting Policies.

What must be disclosed when a policy changes with a material effect?

Disclose the change, the amount by which items are affected to the extent ascertainable, and the reason. If the amount is not ascertainable, state that.

Is disclosure needed if the change has no material effect now?

If a material effect is reasonably expected in later periods, the fact of the change must be disclosed in the period of the change. If no such effect is expected, no special disclosure is needed.

Do I have to disclose going concern, consistency and accrual every year?

No. If they are followed, disclosure is not required. You disclose only when a fundamental assumption is not followed.