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Disclosure for change in valuation method of closing stock

Sumiti Jain (FP) (1364 Points)

02 March 2010

A co. wants to change its valuation method of closing stock from FIFO to Average Stock method.by doing so profit of the co. is increased so there should be no objection to revenue authority in changing the method of valuation of closing stock.

Is this manadatory to continue that method in future and as a statutary auditor what we have to disclose in our report?
Reason for changing the method is required to disclose?

this is urgent guys, plz do reply. Thanx in advance.

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6 Replies

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 02 March 2010

As per AS1 "Disclosure of Accounting Policies", it is mandatory for enterprises to disclose the accounting policies followed, and if you change it, you have to show what material effect it has on financial statements (if determined), it is so to follow the fundamental accounting assumption of consistency.......

It is not essential that as you change the accounting policy to more profit oriented, the revenue authority, would accept it.

The change in Valuation of Closing stock would be allowed only when (i) permitted by law (ii) required by statute (iii) the change will show more appropriate working of the said item...........

You have to show the change..........

1 Like

Anuraag Sharma (Sr Executive Finance) (845 Points)
Replied 02 March 2010

As Per AS 1 "Disclosure of Accounting Policies" Every change in Accounting poilicy is permitted only when such change

i) permitted by law

ii) required by statute

iii) such change will show more appropriate working of the said item & reflect more true & fair view of Financial Statements

As a statutory auditor you should comment on such change and should aslo commnet on the appropriateness of accounting method folowed for valuing closing stock.....

You should also comment that it is the responsibility of the management to disclose the materuial effect of such change in current year as well as in future periods.......

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Sumiti Jain (FP) (1364 Points)
Replied 03 March 2010

Thanx Mr. Love n Mr.Anurag

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 06 March 2010

Thanks Sumiti Jain.........

karan (Tax Practice) (51 Points)
Replied 07 June 2010

but is it right to say that retrospective effect should be given in this case or any other case of a definite change in accounting policy and the effect is ascertainable ?