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

Kaveri Textiles Ltd. follows the accrual basis of accounting but, in the financial statements for the year ended 31 March, has not disclosed this fact because it believes the basis is obvious. Under AS 1, what is the correct position?

No specific disclosure is required. AS 1 treats going concern, consistency and accrual as fundamental accounting assumptions, and their use is presumed. Disclosure is needed only if any of them is not followed, so Kaveri Textiles need not state that it follows the accrual basis.

  1. ADisclosure is required only if the company is listed on a stock exchange
  2. BAccrual is a fundamental accounting assumption; if followed, no specific disclosure is requiredCorrect
  3. CDisclosure is mandatory every year because accrual is a significant accounting policy
  4. DDisclosure is required only if the accrual basis has changed from the cash basis in the past five years

Explanation

AS 1 treats going concern, consistency and accrual as fundamental accounting assumptions. If they are followed, no separate disclosure is needed. Disclosure is required only when a fundamental assumption is not followed. Option C wrongly treats accrual as a disclosable policy when it is followed.

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