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

Sundaram Textiles Ltd. prepares its financial statements on the assumption that it will continue in operation for the foreseeable future and that revenues and expenses are matched with each other and recognised when earned or incurred, not when cash moves. The company has not separately disclosed these assumptions in its accounting policy note. Under AS 1, which of the following statements is correct?

Going concern, consistency and accrual are the three fundamental accounting assumptions under AS 1. If they are followed, no separate disclosure is needed; disclosure is required only when any of them is not followed in preparing the financial statements.

  1. AGoing concern, consistency and accrual are fundamental accounting assumptions, and if they are followed no specific disclosure is requiredCorrect
  2. BGoing concern, consistency and accrual are fundamental accounting assumptions, and the company must always disclose them in the policy note
  3. COnly going concern is a fundamental accounting assumption; accrual and consistency are accounting policies requiring disclosure
  4. DFundamental accounting assumptions must be disclosed only when the auditor asks for them

Explanation

AS 1 treats going concern, consistency and accrual as fundamental accounting assumptions. Disclosure is needed only if any of them is NOT followed. Since Sundaram follows all three, no disclosure is required. Option B wrongly requires disclosure even when they are followed.

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