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

Mehta Engineering Ltd. adopted a new accounting policy for 2025-26 whose effect on the current year is not material. However, the company reasonably expects the change to have a material effect in later periods. What does AS 1 require?

AS 1 requires that if a policy change has no material effect now but is reasonably expected to be material in later periods, the fact of the change must be disclosed in the period of adoption. Waiting until the effect becomes material is not permitted.

  1. ANo disclosure at all until the effect becomes material
  2. BDisclose the change in the current period and also indicate that the effect in later periods is expected to be materialCorrect
  3. CRestate the opening reserves by the expected future amount
  4. DDisclose the change only in the auditor's report

Explanation

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

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