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

Sunrise Textiles Ltd. follows the accrual basis, going concern and consistency as fundamental accounting assumptions. In preparing its financial statements for 2025-26, the company's accountant, Mr. Rao, did not disclose that the financial statements were prepared on the accrual basis, as the company has followed it for many years. Under AS 1, what is the correct position?

Under AS 1, no separate disclosure is needed when the fundamental accounting assumptions of going concern, consistency and accrual are followed. Disclosure is required only when any of them is not followed, so Mr. Rao's omission is correct.

  1. ADisclosure of accrual basis is required in every case, even if followed
  2. BDisclosure of the fundamental assumptions is required only if they are not followedCorrect
  3. CDisclosure of going concern is mandatory but accrual need not be disclosed
  4. DDisclosure of the assumptions is required only for listed companies

Explanation

AS 1 states that if the fundamental accounting assumptions (going concern, consistency, accrual) are followed in financial statements, specific disclosure is not required. Disclosure is needed only if any of them is not followed. Hence Mr. Rao need not disclose accrual basis.

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