Skip to content

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

Sagar Textiles Ltd. follows the accrual basis, going concern and consistency as fundamental accounting assumptions. In preparing its financial statements for the year ended 31 March 2026, the company did NOT follow the accrual basis for recognising its export incentive income and did not disclose this fact. Under AS 1, what is the correct position?

Under AS 1, going concern, consistency and accrual are fundamental accounting assumptions that are presumed to be followed. If any one is not followed, the fact must be disclosed in the financial statements. Hence Sagar Textiles must disclose that accrual was not followed for the export incentive income.

  1. ADisclosure is required only if the amount is material to the auditor
  2. BNo disclosure is needed because accrual is only a policy choice
  3. CDisclosure of the fact is required because a fundamental accounting assumption has not been followedCorrect
  4. DDisclosure is needed only if going concern is also not followed

Explanation

AS 1 states that if a fundamental accounting assumption (going concern, consistency, accrual) is not followed, the fact must be disclosed. Non-following is not a free choice; specific disclosure is required. Option 2 wrongly treats accrual as an optional policy.

Did you get it right without looking?

One question tells you little. A timed set on AS 1 Disclosure of Accounting Policies shows your real accuracy, how long you take and where you lose marks.

Practise AS 1 Disclosure of Accounting PoliciesFree diagnostic mock

More AS 1 Disclosure of Accounting Policies questions