DISCLOSURE OF ACCOUNTING POLICIES (INTRODUCTION)

DISCLOSURE OF ACCOUNTING POLICIES (AS 1)

Introduction

• Irrespective of extent of standardisation, diversity in accounting policies is unavoidable for two reasons. First, accounting standards cannot and do not cover all possible areas of accounting and enterprises have the freedom of adopting any reasonable accounting policy in areas not covered by a standard. 
• Second, since enterprises operate in diverse situations, it is impossible to develop a single set of policies applicable to all enterprises for all time. 
• The accounting standards therefore permit more than one policy even in areas covered by it. Differences in accounting policies lead to differences in reported information even if underlying transactions are same.
•  The qualitative characteristic of comparability of financial statements therefore suffers due to diversity of accounting policies. Since uniformity is impossible, and accounting standards permit more than one alternative in many cases, it is not enough to say that all standards have been complied with. 
• For these reasons, accounting standard 1 requires enterprises to disclose significant accounting policies actually adopted by them in preparation of their financial statements. Such disclosures allow the users of financial statements to take the differences in accounting policies into consideration and to make necessary adjustments in their analysis of such statements. 
• The purpose of Accounting Standard 1, Disclosure of Accounting Policies, is to promote better understanding of financial statements by requiring disclosure of significant accounting policies in orderly manner. 
• As explained in the preceding paragraph, such disclosures facilitate more meaningful comparison between financial statements of different enterprises for same accounting periods. 
• The standard also requires disclosure of changes in accounting policies such that the users can compare financial statements of same enterprise for different accounting periods. The standard applies to all enterprises.