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CA Intermediate · Advanced Accounting · AS 1 Disclosure of Accounting Policies

Gopal Traders Ltd. has the following items in its annual report: (i) a description of the significant accounting policies in one place, (ii) a statement that financial statements are prepared on accrual basis though revenue on certain claims is recognised on cash basis, with no disclosure of the exception, (iii) a policy for foreign exchange differences. As per AS 1, which is the correct observation?

The company must disclose that certain claims are accounted on cash basis, because accrual is presumed to be followed and any departure must be stated. Significant policies are normally shown together in one place, and policies on foreign exchange form part of the disclosure as well.

  1. APolicies must be scattered in the notes relevant to each item, not in one place
  2. BThe exception regarding cash basis must be disclosed, since accrual is presumed to be followed unless stated otherwiseCorrect
  3. CAccrual accounting need not be disclosed in any circumstance
  4. DForeign exchange policies need not be disclosed as AS 11 deals with them

Explanation

AS 1 requires that if a fundamental accounting assumption such as accrual is not followed, the fact must be disclosed. Significant accounting policies should be disclosed together in one place, and policies including foreign exchange treatment are part of the disclosure. Hence the unreported cash-basis exception is the lapse.

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