Accounting Policies (ICDS-1)
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Income Computation and Disclosure standard (ICDS)-1, deals with accounting policies adopted by the tax payer. According to ICDS-1, accounting policies have to be followed on consistent basis and any change in the accounting policy will be made only if there is an reasonable cause, however, reasonable cause is not defined in the standards, however, one can take an example like change in accounting policies will make better presentation of accounts.
According to ICDS-1, three aspects needs to considered by any tax payer:
- Firstly, there should be an true and fair view of accounts, meaning, a person should adopt such accounting policies which will represent true and fair state of affairs and correct income of the business.
- Secondly, transaction and events shall be governed by their substance and not merely by its legal form.
- Marked to market loss or an expected loss shall not be recognised unless the recognition of such loss is in accordance with provision of any other ICDS.
Fundamental Accounting assumptions
- Going Concern: Its refer to an assumption that person has neither any intension nor has any necessity of liquidation of its business.
- Consistency: It means, accounting policies will continue to applied from one accounting period to another accounting period provided there is an reasonable cause of change.
- Accrual: It means that revenue and cost will be accounting in the period to which it relate, but not in period in which it is received or incurred in cash.
Disclosure of Accounting policies
- Person should disclose all the accounting policies adopted by the person
- Any change in an accounting policy which has a material effect shall be disclosed. The amount by which any item is affected by such change shall also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact shall be indicated. If a change is made in the accounting policies which has no material effect for the current previous year but which is reasonably expected to have a material effect in later previous years, the fact of such change shall be appropriately disclosed in the previous year in which the change is adopted and also in the previous year in which such change has material effect for the first time.
- Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item.
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