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CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting

According to AS 1 as reproduced in the study text, what is the effect of disclosing accounting policies on an item that has been wrongly treated in the accounts?

Disclosure of accounting policies, or of changes in them, cannot remedy a wrong or inappropriate treatment of an item in the accounts. An incorrect treatment stays incorrect even if it is fully explained in the notes, so the correct treatment must be applied in the books.

  1. AThe wrong treatment is cured by the disclosure
  2. BDisclosure cannot remedy a wrong or inappropriate treatment of the itemCorrect
  3. CThe treatment becomes acceptable if the change is disclosed in notes
  4. DThe item is excluded from the financial statements

Explanation

AS 1 states that disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item in the accounts. Hence the other options, which suggest disclosure cures or legitimises a wrong treatment, are incorrect.

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