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CMA Intermediate · Financial Accounting · Disclosure of Accounting Policies (AS 1)

In 2026-27, Kaveri Ltd changed its accounting policy. The change has no material effect on the current year's financial statements, but it is reasonably expected to have a material effect in later periods. What does AS 1 require?

Kaveri Ltd must disclose the fact of the change appropriately in the period in which it adopts the change. AS 1 requires this even though the current effect is immaterial, because a material effect is reasonably expected in later periods.

  1. ANo disclosure, since the current-year effect is not material
  2. BDisclosure of the fact of the change in the period in which the change is adoptedCorrect
  3. CDisclosure only in the year when the material effect first arises
  4. DRestatement of the current year's figures to show the later effect

Explanation

AS 1 says that where a policy change has no material effect in the current period but is reasonably expected to have a material effect later, the fact of the change should be appropriately disclosed in the period in which it is adopted. Waiting until the effect arises is therefore wrong.

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