Page 51 - DMGT104_FINANCIAL_ACCOUNTING

Unit 3: Accounting Standards

In the initial years, this accounting standard will be recommendatory in character. During this Notes
period, this standard is recommended for use by companies listed on a recognised stock exchange
and other large commercial, industrial and business enterprises in the public and private sectors.

Introduction

1. This statement deals with the disclosure of significant accounting policies followed in
preparing and presenting financial statements.
2. The view presented in the financial statements of an enterprise of its state of affairs and of
the profit or loss can be significantly affected by the accounting policies followed in the
preparation and presentation of the financial statements. The accounting policies followed
vary from enterprise to enterprise. Disclosure of significant accounting policies followed
is necessary if the view presented is to be properly appreciated.
3. The disclosure of some of the accounting policies followed in the preparation and
presentation of the financial statements is required by law in some cases.
4. The Institute of Chartered Accountants of India has, in Statements issued by it,
recommended the disclosure of certain accounting policies, e.g., translation policies in
respect of foreign currency items.
5. In recent years, a few enterprises in India have adopted the practice of including in their
annual reports to shareholders a separate statement of accounting policies followed in
preparing and presenting the financial statements.
6. In general, however, accounting policies are not at present regularly and fully disclosed in
all financial statements. Many enterprises include in the Notes on the Accounts, descriptions
of some of the significant accounting policies. But the nature and degree of disclosure vary
considerably between the corporate and the non-corporate sectors and between units in
the same sector.

7. Even among the few enterprises that presently include in their annual reports a separate
statement of accounting policies, considerable variation exists. The statement of accounting
policies forms part of accounts in some cases while in others it is given as supplementary
information.
8. The purpose of this Statement is to promote better understanding of financial statements
by establishing through an accounting standard the disclosure of significant accounting
policies and the manner in which accounting policies are disclosed in the financial
statements. Such disclosure would also facilitate a more meaningful comparison between
financial statements of different enterprises.

Explanation

Fundamental Accounting Assumptions

9. Certain fundamental accounting assumptions underlie the preparation and presentation
of financial statements. They are usually not specifically stated because their acceptance
and use are assumed. Disclosure is necessary if they are not followed.
10. The following have been generally accepted as fundamental accounting assumptions:
(a) Going Concern: The enterprise is normally viewed as a going concern, that is, as
continuing in operation for the foreseeable future. It is assumed that the enterprise
has neither the intention nor the necessity of liquidation or of curtailing materially
the scale of the operations.

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