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CMA Final · Corporate Financial Reporting · Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)

Aarav Textiles Ltd finds no Ind AS that specifically applies to a particular transaction. Management must use judgement to develop a policy. Which approach is consistent with Ind AS 8?

When no Ind AS applies specifically, management uses judgement, referring first to Ind AS covering similar issues, then to the Conceptual Framework's definitions and recognition criteria, and only then to non-conflicting pronouncements of other standard-setters. Mere consistency or copying a competitor does not satisfy Ind AS 8.

  1. AChoose any policy, provided it is consistently applied from year to year
  2. BApply the policy used by the largest competitor in the industry
  3. CRefer first to Ind AS dealing with similar and related issues, then to the Framework definitions and recognition criteria, and may consider other standard-setters' pronouncements only if they do not conflictCorrect
  4. DRecognise the transaction directly in reserves, since no standard applies

Explanation

Where no Ind AS specifically applies, management uses judgement to develop a policy giving relevant and reliable information. It looks first at Ind AS dealing with similar issues, then at the Framework's definitions and criteria, and may consider other standard-setters' recent pronouncements and accepted industry practice if consistent with these. Consistency alone or copying a competitor is insufficient, and posting to reserves is not permitted.

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