AS 1 Disclosure of Accounting Policies: A Practitioner Guide for FY 2026-27
AS 1 (Disclosure of Accounting Policies) is the foundational accounting standard mandating that every enterprise discloses all significant accounting policies adopted in preparing and presenting its financial statements.
The Institute of Chartered Accountants of India (ICAI) issued AS 1 under the Companies (Accounting Standards) Rules, 2006. It became mandatory from 1 April 1991 and reaffirmed by the Companies (Accounting Standards) Rules, 2021. AS 1 superseded the original ICAI standard from November 1979.
For FY 2026-27, AS 1 remains highly relevant to all companies under the AS framework. In our audit practice we frequently observe that peer review and statutory audits focus sharply on the quality and completeness of this disclosure. Mid-market private companies often comply rigorously with AS 1 as their first note.
AS 1 at a Glance
AS 1 requires every enterprise to disclose all significant accounting policies adopted in preparing its financial statements. This standard serves as the backbone for transparent financial reporting and is primarily used by preparers and auditors across all sectors.
| Field | Value |
|---|---|
| Standard Number | AS 1 |
| Full Name | Disclosure of Accounting Policies |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021) |
| Effective Date | 1 April 1991 (mandatory for all enterprises) |
| Supersedes | ICAI Accounting Standard issued in November 1979 (revised 1991) |
| Equivalent Standard | AS 1 ↔ Ind AS 1 ↔ IAS 1 |
| Applies To | Mandatory for all enterprises preparing financial statements under the Accounting Standards framework. |
What is AS 1: Disclosure of Accounting Policies?
AS 1 sets out the principle that every enterprise must disclose all significant accounting policies used in preparing its financial statements. These disclosures enable users to understand how key items are recognised, measured, and presented.
The ICAI introduced this standard to promote transparency and comparability across Indian companies' financial statements. Before its notification in April 1991, there was no uniform requirement for policy disclosure. The standard aligns conceptually with international norms such as IAS 1 and forms the foundation for later convergence with Ind AS.
Statutory auditors, CFOs, finance teams in private limited companies, and CA students rely on this standard as their primary reference for presenting accounting policies in Indian GAAP financial statements.
Objective of AS 1
- Promote better understanding of financial statements by establishing the practice of disclosing significant accounting policies followed in their preparation and presentation.
- Facilitate meaningful comparison between financial statements of different enterprises and across different periods.
- Specify three fundamental accounting assumptions: going concern, consistency, and accrual.
The objective directly supports the “true and fair view” requirement mandated by Section 129 of the Companies Act, 2013. Comprehensive policy disclosure enables stakeholders, including shareholders, lenders, regulators, to interpret reported results accurately within a consistent framework.
Who Must Apply AS 1?
Entities covered
AS framework enterprises must comply with AS 1 irrespective of size or sector. The following applicability matrix summarises coverage:
| Entity Category | Applicability |
|---|---|
| Level I Enterprises | Mandatory |
| Level II Enterprises | Mandatory |
| Level III Enterprises | Mandatory |
| Standalone Financial Statements | Yes |
| Consolidated Financial Statements | Yes |
Level I/II/III classification follows MCA criteria based on listing status and turnover thresholds. All companies not notified under Ind AS must apply AS standards including AS 1
Entities following Ind AS apply Ind AS standards instead; see Ind AS roadmap issued by MCA.
Scope exclusions
AS 1 does not require:
- Note-by-note minor disclosures (focus is on significant policies).
- Disclosures where specific standards mandate their own detailed requirements.
When the standard does not apply
Where an area is governed by another specific standard, such as revenue recognition under AS 9 or foreign currency translation under AS 11, the entity follows those specific disclosure requirements instead.
Key Definitions under AS 1
| Term | Definition |
|---|---|
| Accounting policies | Principles and methods adopted by an enterprise for preparing and presenting its financial statements. |
| Going concern | Assumption that an enterprise will continue operations without intent or need to liquidate or scale down. |
| Consistency | Applying accounting policies unchanged from one period to another. |
| Accrual | Recognising income and expenses when earned or incurred, not when cash is received or paid. |
| Materiality | Information is material if likely to influence users’ economic decisions; immaterial items may be grouped. |
| Substance over form | Transactions are accounted based on their economic substance rather than solely their legal form. |
| Prudence | Exercising caution so assets/income are not overstated; liabilities/expenses are not understated. |
Recognition and Measurement under AS 1
When to recognise
An entity must disclose its significant accounting policies in every set of financial statements prepared under Indian GAAP (Para 24). The three fundamental assumptions, going concern, consistency, accrual, are presumed unless explicitly stated otherwise by management.
If any fundamental assumption is not followed, for example if a company ceases to be a going concern, the fact must be disclosed prominently along with reasons (Para 27).
Initial measurement
AS 1 does not prescribe measurement bases itself but requires that each significant policy relating to recognition or measurement be disclosed clearly at one place, usually as Note “Significant Accounting Policies”. The choice among alternative principles (such as FIFO versus weighted average for inventory valuation) must reflect prudence, substance over form, and materiality considerations per Para 17.
**Formula:**
Significant Policy Disclosure = Principle Chosen + Method Applied + Any Entity-Specific Application
*Example:* Inventory valued at lower of cost (FIFO method) or net realisable value.
The note should cover each material area, basis of preparation (historical cost/accrual), revenue recognition timing/methods per relevant standards (AS 9), depreciation method ([AS 10]), foreign exchange ([AS 11]), employee benefits ([AS 15]), provisions ([AS 29]), etc., with cross-references where required.
Subsequent measurement
Policies should be applied consistently from period to period unless a change is justified by statute or improved presentation/relevance per Para 32 cross-referring to AS 5. Any change must be disclosed together with quantified impact if ascertainable; otherwise state that quantification is impracticable.
Fundamental assumptions are only disclosed if they are *not* followed; otherwise no explicit mention is required.
Three Fundamental Assumptions and Major Considerations
Para 4-6 lay down three core assumptions:
(a) Going concern: The entity will continue operations into the foreseeable future.
(b) Consistency: Same principles/policies are applied across periods.
(c) Accrual: Income/expenses recognised when earned/incurred, not based on cash flows alone.
If any assumption does not hold, for example due to liquidation, the departure must be disclosed with reasons (Para 27). Selection among alternative policies must consider:
*Prudence*, avoid overstatement of assets/income;
*Substance over form*, reflect economic reality;
*Materiality*, focus only on items affecting user decisions.
Significant accounting policies must appear together, typically as Note No scattering across multiple notes is permitted under the standard’s requirements.
Worked Examples on AS
Example: Significant accounting policies note
Krishna Steel Industries Ltd prepares its annual accounts using the Indian GAAP framework. Its first major note must present all significant accounting policies including basis of preparation (historical cost/accrual), revenue recognition approach (dispatch basis for goods), inventory valuation method (FIFO at lower of cost/net realisable value), depreciation method (WDV/SLM), foreign currency translation per applicable standards ([AS 11]), employee benefits ([AS 15]), provisions ([AS 29]) etc., structured logically for users’ understanding.
Computation Table
| Policy Area | Principle Followed | Specific Application / Cross-reference |
|---|---|---|
| Basis | Historical cost / Going concern / Accrual | - |
| Revenue | Recognition at dispatch / completion | Per contract terms / [AS 9] |
| Inventory | FIFO at lower of cost/NRV | Per [AS 2] |
| Depreciation | WDV / SLM | Useful lives per schedule II |
| Foreign Currency | Year-end rates / Transaction date rates | Per [AS 11] |
| Employee Benefits | Accrual | Per [AS 15] |
Journal Entry
No journal entry arises from policy disclosure itself, it appears as a narrative note in the published accounts.
Example 2: Disclosure of fundamental assumption not followed
Sundaram Castings Ltd faces severe operating losses without recovery prospects; management resolves not to prepare accounts on going concern basis but instead uses realisable values reflecting imminent liquidation.
Computation Table
| Requirement | Application | Reference |
|---|---|---|
| Departure from going concern | Explicitly stated in notes | Para 27 |
| Reason | Board decision post sustained losses | Board minutes/disclosure |
| Basis used | Realisable/liquidation values | Note reference |
| Adjustments | Asset write-downs/liability reclassification | Per relevant standards |
Journal Entry
Asset revaluations/write-downs:
Dr Loss on revaluation Cr Property Plant & Equipment
Liabilities reclassified as current:
Dr Long-term Liabilities Cr Current Liabilities
Additional provisions:
Dr Expense Cr Provision for Severance/Termination Costs
Each adjustment follows relevant standards but consolidated impact appears in disclosures per Para 27.
Disclosure Requirements under AS 1
AS 1 requires every enterprise to disclose all significant accounting policies in one place, typically as the first note to the financial statements. Schedule III to the Companies Act, 2013, reinforces this requirement by mandating clear presentation and transparency of accounting policy choices. Proper disclosure ensures comparability and user trust.
| Item | Requirement | Para Reference |
|---|---|---|
| Significant accounting policies | All significant accounting policies adopted should be disclosed at one place | Para 24 |
| Fundamental accounting assumptions | Disclose only if NOT followed (presumed otherwise) | Para 27 |
| Major considerations governing selection | Implicit; not separately disclosed but influence the policies chosen | Para 17 |
| Changes in accounting policies | Disclosure under AS 5 cross-reference | Para 32 |
| Specific policies for material items | Where standards mandate specific policy disclosure | Cross-references |
Auditors must evaluate whether disclosures under AS 1 meet both the letter and spirit of the standard, as required by SA 700 when forming their opinion on true and fair presentation.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Boilerplate policies not tailored to entity-specific facts (e.g., vague inventory valuation without cost method).
- Scattering accounting policies across multiple notes instead of a single consolidated note.
- Failing to disclose departure from a fundamental assumption such as going concern.
- Including immaterial or irrelevant policy statements that obscure significant ones.
- Not updating disclosed policies when underlying standards change.
- Changing policies between periods without proper disclosure per AS 5.
Industry application notes
Mid-market private companies often treat AS 1 compliance as non-negotiable, making it their most rigorously prepared note. ICAI peer review teams and statutory auditors consistently focus on completeness and clarity of these disclosures.
Listed companies under the AS framework face additional scrutiny. SEBI requires consistent application of accounting policies in quarterly results. Any material change must receive board approval and be disclosed prominently to maintain investor confidence.
Trusts and societies sometimes apply AS standards voluntarily, especially when seeking income tax exemptions. Clear policy disclosures help satisfy regulatory requirements during assessments.
AS 1 vs Ind AS 1 vs IFRS: Key Differences
The table below compares AS 1 with Ind AS 1 and IAS 1 (IFRS) across key dimensions:
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Scope | All enterprises in AS framework | Comprehensive framework standard (Ind AS 1) | IAS 1 - comprehensive |
| Fundamental assumptions | Three (going concern, consistency, accrual) | Going concern explicit; consistency under accounting policies; accrual under conceptual framework | Same as Ind AS |
| Major considerations | Prudence, substance over form, materiality | Substance over form; materiality; prudence balanced with neutrality | Same as Ind AS |
| Disclosure location | One place (first note typically) | One place; policies + other significant matters | Same |
| Policy changes | Cross-reference AS 5 | Ind AS 8 - retrospective | IAS 8 - retrospective |
India’s carve-outs from IFRS for this topic are limited at the policy disclosure level. However, Ind AS introduces additional presentation requirements and balances prudence with neutrality more explicitly than legacy Indian GAAP. Entities transitioning from AS to Ind AS must revisit both content and format of their policy disclosures.
Latest Amendments to AS 1 (FY 2026-27)
No amendments have been notified to AS 1 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [Ind AS 1](/ind-as-1-presentation-of-financial-statements/), Equivalent presentation standard for Ind AS-applicable companies; broader in scope.
- [AS 5](/as-5-net-profit-prior-period-changes/), Changes in accounting policies addressed under AS 5.
- All other AS, AS 1 establishes the framework on which all other AS rest.
- Companies Act 2013 - Schedule III, Complements AS 1 by specifying presentation format.
Need Help with AS 1 Compliance?
Patron Accounting LLP supports CFOs, finance teams, and auditors with full-scope compliance for AS 1 Disclosure of Accounting Policies. Our technical team ensures your financial statements withstand scrutiny from statutory auditors, regulators, and peer reviewers.
Our services include:
- Statutory Audit
- Financial Reporting & Schedule III
- Disclosure Review
- Ind AS Advisory
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
AS 1 requires every enterprise preparing financial statements under Indian GAAP to disclose all significant accounting policies adopted in one place. This enables users, shareholders, lenders, regulators, to understand how recognition, measurement, and presentation decisions affect reported results.
The three fundamental assumptions are going concern (the business will continue), consistency (policies are applied unchanged across periods), and accrual (income/expenses recognised when earned/incurred). These are presumed unless management discloses otherwise per Para 4-6 and Para 27.
While both require disclosure of significant accounting policies at one place, Ind AS 1 has a broader scope. It mandates more detailed presentation requirements, such as capital management disclosures, and balances prudence with neutrality rather than prioritising prudence alone.
If management concludes that going concern no longer applies, for example due to liquidation, the fact must be disclosed prominently per Para 27. The basis used for preparing accounts (such as realisable values) and reasons for departure must also be explained clearly.
Yes. Accrual is a fundamental assumption under Para 6 of AS 1. Revenues and expenses must be recognised when earned or incurred, not merely when cash is received or paid, unless specifically exempted by law or regulation.
Consistency means applying identical accounting principles from one period to another unless a change is justified by statute or improved relevance/reliability. Any change in policy requires disclosure along with quantified impact if ascertainable per cross-reference to AS 5.
The note should cover all major areas affecting recognition or measurement, basis of preparation, revenue recognition methods, inventory valuation method, depreciation approach, foreign currency translation method, and reference relevant standards such as [AS 9], [AS 10], [AS 11], [AS 15], [AS 29].
No. Disclosures must reflect entity-specific facts, such as actual inventory valuation method used (FIFO/weighted average), and avoid vague or generic language. Auditors frequently flag boilerplate notes that do not describe real practices or changes relevant to users’ understanding.
All changes in accounting policy must be disclosed per Para 32 of AS 1 with cross-reference to [AS 5]. The nature of change, reasons for change, and financial impact (if quantifiable) should be stated clearly in the financial statements for transparency.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021)) · IFRS Foundation