The main objective of this AS is to ensure the disclosure of significant accounting principles and policies and changes at the time of preparation of financial statements for worth use.
Accounting policies means specific accounting principles and methods adopted by an enterprise in applying these principles in preparation and presentation of financial statements.
Whereas policies normally differ in valuation of fixed assets, inventory, investment, revenue recognitions, depreciation etc.
Unless any contrary position is disclosed, financial statements are governed by fundamental accounting assumptions of going concern, consistency and accrual. Any deviation must be disclosed.
An organization is guided by the following considerations in selecting accounting policies:
# Prudence: Don't recognize anticipated profits but provide for all anticipated losses.
# Substance over form: Economic reality and financial consideration get preference over legal form in reporting.
# Materiality: Financial statement should disclose all material items.
An enterprise is free to change its existing policies unless it violates any statutory provisions or AS. Changes having material effect must be fully disclosed along with financial implications.
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