Disclosure of Accounting Policies entrances intelligibility of Financial Statements” Explain.
Answers
Explanation:
The information presented in the financial statements of an organisation is of its financial position. The profit or loss can be affected to a large degree by the accounting policies followed. The accounting policies followed vary from organisation to organisation. It is important to disclose significant accounting policies followed to make the financial statements understandable. The disclosure is required by law in certain cases.
In recent years, organisations in India have adopted the practice of including a separate statement of accounting policies followed in their annual reports to shareholders.
Many organisations list the accounting policies followed by them in the notes to their financial statements, but there is no consistency in the disclosures among organisations. In other words, the disclosure forms part of accounts in some cases, while in others it is given as supplementary information.
The purpose of this standard is to promote better understanding of financial statements by establishing the practice of disclosure of significant accounting policies followed and the manner in which they are disclosed in the financial statements. Such disclosure would also facilitate a more meaningful comparison between financial statements of different organisations.