ICDS I - Accounting Policies

In this article, we will explain about ICDS-I and its difference with respective Notified AS. To understand what is ICDS, read our previous article.

ICDS I Accounting Policies

ICDS I deals with significant accounting policies. Accounting policies are the specific accounting principles and methods of applying those principles in preparation and presentation of financial statements. There are three fundamental accounting principles:

1. Going concern: Refers to the assumption of a continuous succession of an entity without the intention or necessity of its liquidation.
2. Consistency: Refers to the assumption that accounting policies will be followed consistently from one period to other. 
3. Accrual: Refers to the assumption that recognition and recording of revenues will be done as soon as they are earned and recognition of cost will be done as soon as they are incurred.

Disclosure of Accounting principles

• All significant accounting policies adopted shall be disclosed.
• Any change in an accounting policy which has a material effect shall be disclosed along with the amount, to the extent ascertainable, by which any item is affected by such change shall also be disclosed. Where such amount is not ascertainable, wholly or in part, the fact shall be indicated.
• If a change does not affect current year, but which is expected to have a material effect in upcoming years, the fact of such change shall be appropriately disclosed in the year in which the change is adopted and also in the year in which such change has a material effect.
• Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item.
• Whether any fundamental accounting assumptions of Going Concern, Consistency or Accrual is not followed, the fact shall be disclosed.

Comparison of ICDS I with AS 1 – Consideration while selecting/changing Accounting policies

• ICDS I provides that any mark to market loss or expected loss should not be recognized unless ICDS provides for that. AS 1 considers ‘prudence’ as one of the factor to select or change the accounting policy, according to which profits should be recognized only when it is realized, whether in cash or not. Provision for known losses and liabilities should also be made.
• AS 1 considers ‘materiality’ as important factor for selecting/changing accounting policies, which provides that Financial statements should disclose all “material” items which might influence the decisions of the user of the financial statement. ICDS I does not provide specifically for the same.

Similarity: Both, ICDS I and AS 1, consider substance over form. The accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely by the legal form.

For further reading on these series, check out our next article on ICDS II.