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THEY REDUCE THE ALTERNATIVES IN PREPRATION OF FINANCIAL STATEMENTS IN BOUNDS OF RATIONALITY THEREBY ENSURING COMPARABILITY.
LIMITATIONS
STANDARDS ELIMINATE CONFUSING VARIATIONS IN ACCOUNTING TREATMENTS. STANDARDS MAY CALL FOR DISLOSURE OF INFORMATION BEHOND THAT ARE REQUIRED BY LAW. FACILITATE THE COMPARISION OF FINANCIAL STATEMENTS OF COMPANIES IN COUNTRY OR IN THE WORLD.
THERE ARE RECOMMENDATIONS FOR USING ALTERNATIVE TRETMENTS SO TO CHOICE BETWEEN ALTERNATIVES MAY BECOME DIFFICULT. TREND CAN MOVE TOWARDS RIGIDITY AND AWAY FROM FLEXIBILITY IN APPLYING ASs. THEY ARE REQUIRED TO BE FRAMED WITHIN THE RANGE OF STATUTES.
This standard deals with the disclosure of significant accounting policies followed in preparation and presentation of financial statements.
Financial statements portray the effect of past events and transaction. Accounting policies and methods adopted by an enterprise, in turn, influence the effect of past events and transactions.
The disclosure by an entity of its accounting policies, enable users to- understand the past - extrapolate to the future. Accounting policies refer to: a) Specific accounting principles, and
NEED OF DISCLOSURE
Accounting principles and methods can differ between one enterprise and another, in the areas of recognition, treatment or valuation of assets, or recognition of transactions or events. An illustrative list of examples is given below:
Accrual Concept - Transactions are recognized as soon as they occur, whether cash is actually paid or received.
Consistency Concept - Practice of using same accounting policies for sililar transactions in all accounting periods.
AREAS OF DISCLOSURE
All significant policies adopted in the preparation and presentation of financial statements should be disclosed at one place and should form part of the financial statements.
An enterprise is free to change its accounting policies, unless it violates any statutory provisions, or codes laid down in a mandatory Accounting Standard, and provided of course such a change leads to better and more meaningful presentation of accounting information.
Where a change in the accounting policies carries with it a material impact on the performance and operations in the current period, the amount by which any item in the financial statement is affected by such change should also be disclosed to the extent ascertainable. E.g. Changing the depreciation policy from STRAIGHT-LINE to WRITTEN DOWN VALUE for better representation.
Require specific disclosure for departure from IFRS (INTERNATIONAL FINANCIAL REPORTING STANDARDS) True and fair view, going No item should be concern, consistency, disclosed as extraordinary accrual, prudence, item. materiality and substance over form are highlighted.