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

Sagar Textiles Ltd. prepares its financial statements on the going concern basis, accrual basis and consistency, and follows these without stating so anywhere in its notes. Under AS 1, what is the correct disclosure position regarding these three fundamental accounting assumptions?

Disclosure is needed only when a fundamental accounting assumption is not followed. Under AS 1, going concern, consistency and accrual are presumed to be followed, so no separate disclosure is required when they are followed. Sagar Textiles need not mention them in the notes.

  1. AEach must be disclosed in the notes every year, whether or not it is followed
  2. BDisclosure is required only if the assumption is not followedCorrect
  3. CDisclosure is required only for going concern, not for the other two
  4. DDisclosure is required only when the company is listed

Explanation

AS 1 treats going concern, consistency and accrual as fundamental accounting assumptions. If they are followed, no specific disclosure is needed because their acceptance is assumed. If any one is not followed, the fact must be disclosed. Requiring annual disclosure in all cases is therefore wrong.

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