Accounting Assumptions for UPSC EPFO APFC: 7 Easy Steps, Going Concern, Consistency, Accrual and 10 MCQs
Accounting assumptions are the starting point of every set of financial statements, and UPSC has already tested them in the EPFO APFC paper. AS 1 names only three as fundamental: going concern, consistency and accrual. ICAI material also discusses business entity, money measurement and the accounting period, but those are not in that short official list. This page stays with the assumptions, the disclosure rule and the usual traps. For the wider tour, use our accounting concepts and conventions notes for APFC.
AS 1 trio
- Going concern
- Consistency
- Accrual
Disclosure (para 27)
- Followed: no specific disclosure
- Not followed: disclose the fact
Going concern
- Continue for the foreseeable future
- Not forced-sale values
Consistency
- AS 1: policies stay consistent
- Ind AS 1: presentation and classification
Accrual
- When earned or incurred, not cash
- Ind AS 1: except cash-flow information
Not in the AS 1 list
- Matching, prudence, entity, money, period
- Policy changes under Ind AS go to Ind AS 8
1What accounting assumptions are
An assumption is something the accountant takes as given when the books are opened. It is the foundation under a method, not the method itself, such as straight-line depreciation. Textbooks often mix “concepts”, “principles” and “conventions”, and ICAI notes that the words are used interchangeably. A cleaner split still helps, because UPSC asks which items sit in the AS 1 list.
| Term | What it means | Examples |
|---|---|---|
| Assumptions | Premises taken as true unless stated otherwise | AS 1 trio; also entity, money measurement, period |
| Principles / concepts | Rules for how transactions enter the books | Dual aspect, cost, realisation, matching |
| Conventions | Customs that guide judgement when a choice exists | Conservatism (prudence), materiality |
| Accounting policies | The specific principles and methods the enterprise uses (AS 1, paragraph 11) | FIFO or weighted average; SLM or WDV |
2The three fundamental accounting assumptions
AS 1, paragraphs 9 and 10, say that certain fundamental accounting assumptions underlie the financial statements. They are usually not spelled out, because their use is taken for granted. It names exactly three: going concern, consistency and accrual.
Going concern
- The enterprise will continue for the foreseeable future
- No intention or need to liquidate or cut operations materially
Consistency
- Accounting policies stay the same from one period to the next
- This makes years comparable
Accrual
- Record income and costs when earned or incurred, not when cash moves
- Items belong to the period they relate to
| Point | AS 1 | Ind AS 1 |
|---|---|---|
| Going concern | Fundamental assumption | Management must assess going concern (paras 25–26, at least twelve months); if it fails, disclose the other basis and the reason |
| Accrual | Fundamental assumption | Required, except for cash-flow information (paras 27–28) |
| Consistency | Fundamental assumption (policies stay consistent) | Separate rule: consistency of presentation and classification (paras 45–46). Policy changes go to Ind AS 8 |
3Going concern
Going concern is the first of the AS 1 accounting assumptions. The enterprise is normally viewed as continuing in operation for the foreseeable future. It is assumed that there is neither the intention nor the necessity of liquidation or of curtailing materially the scale of operations (AS 1, paragraph 10). Assets are then carried at cost less depreciation, not at forced-sale value, and prepaid expenses still have meaning.
The earlier ICAI Framework for the Preparation and Presentation of Financial Statements treated going concern and accrual together as underlying assumptions. The later ICAI Conceptual Framework for Financial Reporting under Ind AS keeps going concern as the underlying assumption and treats accrual as the usual basis of preparation. Under Ind AS 1, paragraphs 25 and 26, management must assess going concern and look at least twelve months from the end of the reporting period. If the assumption fails, another basis, such as a break-up basis, may be used, and the fact, the basis and the reason must be disclosed.
When it holds
- Plant is depreciated over its useful life
- Assets are not shown at forced-sale or break-up values
When it fails
- Intention, or no realistic alternative, to liquidate or stop trading
- The departure, the basis used and the reason must be disclosed
4Consistency, and how Ind AS 1 treats it
Consistency is the second of the fundamental accounting assumptions under AS 1. Under AS 1, consistency means accounting policies stay the same from one period to another, so the same inventory or depreciation method is used unless a change is justified. Consistency does not forbid change. A statute or a standard may require a new method, or the new method may give a more appropriate view. AS 1, paragraphs 22 and 26, then require disclosure of a material change, and the amount of the effect where it can be ascertained.
Ind AS 1 does not put consistency in a short list of “fundamental accounting assumptions”. Paragraphs 45 and 46 require consistency of presentation and classification from one period to the next, unless a change is more appropriate having regard to the criteria in Ind AS 8, or an Ind AS requires it. A change in an accounting policy itself — for example, a new inventory method — is dealt with in Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, not in that Ind AS 1 presentation rule.
5Accrual
Accrual is the third of the fundamental accounting assumptions. Revenues and costs are recognised as they are earned or incurred, not as money is received or paid, and recorded in the periods to which they relate (AS 1, paragraph 10). Unpaid March rent is a March expense and a liability; rent received in advance is a liability, not this year’s income. The same logic appears in final accounts adjustments for APFC.
Accrual (mercantile) basis
- Record when the right or obligation arises
- Outstanding, prepaid and unearned items appear
- Required for companies under Section 128(1)
- Ind AS 1, paragraphs 27–28: required except for cash-flow information
Cash basis
- Record only when cash moves
- Simple, but period profit can mislead
- Cash-flow statements still use cash, even under Ind AS 1
Matching is close to accrual, but it is not a fundamental accounting assumption. Accrual decides the period an item belongs to; matching then sets that period’s costs against its revenues. AS 1 expressly says it does not deal with that process. UPSC has used matching as the option that is not a fundamental assumption.
6Other accounting assumptions in ICAI material
ICAI Foundation material also discusses several traditional assumptions, often called concepts. They matter, but they are not the three fundamental accounting assumptions of AS 1.
Business entity
- The business is distinct from its owner
- Drawings are not business expenses
- The owner’s house stays out of the books
Money measurement
- Only events measurable in money are recorded
- Staff skill is left out
Accounting period
- Also called periodicity
- Results are cut into regular periods, usually a year
- This makes comparison possible
Historical cost, dual aspect, realisation and matching are better treated as principles, not as the AS 1 assumptions. Conservatism, materiality and full disclosure are conventions or, in AS 1, policy considerations. The wider set is on the concepts and conventions page.
7Accounting assumptions traps and one-glance summary
These are the traps that cost marks on accounting assumptions.
- Matching, prudence, money measurement or the accounting period is not an AS 1 fundamental assumption.
- If the three are followed, you do not have to disclose them (AS 1, paragraph 27).
- Ind AS 1 does not copy the AS 1 trio as one labelled list. Its consistency rule is about presentation and classification; policy changes go to Ind AS 8.
- Cost less depreciation, rather than break-up value, is going concern, not money measurement.
- Consistency allows a justified change; it is not a lock on the first method.
| Item | One-line rule |
|---|---|
| AS 1 trio | Going concern, consistency, accrual |
| Disclosure | Silent if followed; disclose the fact if not (paragraph 27) |
| Going concern | Continue for the foreseeable future; not forced-sale values |
| Consistency | AS 1: same policies across periods, disclose a material change. Ind AS 1: presentation and classification |
| Accrual | Record when earned or incurred, not when cash moves |
| Matching | Related concept; not an AS 1 assumption |
| Prudence | AS 1 policy consideration, not an assumption |
| Entity / money / period | Traditional ICAI assumptions, outside the AS 1 trio |
10 practice MCQs with score analysis
Answer all ten, then press Submit. You will see correct, wrong and blank counts, your percentage and an explanation for each question.
FAQ on accounting assumptions
What are the three fundamental accounting assumptions under AS 1?
Going concern, consistency and accrual. AS 1 names only these three. Matching, prudence, money measurement and the accounting period are not in that list.
Do accounting assumptions have to be disclosed if they are followed?
No. Paragraph 27 of AS 1 says that if going concern, consistency and accrual are followed, specific disclosure is not required. If a fundamental accounting assumption is not followed, the fact should be disclosed.
How does Ind AS 1 treat consistency compared with AS 1?
AS 1 lists consistency as a fundamental accounting assumption: accounting policies should be consistent from period to period. Ind AS 1, paragraphs 45 and 46, require consistency of presentation and classification, unless a change is justified having regard to Ind AS 8 or an Ind AS requires it. Changes in accounting policies themselves are dealt with in Ind AS 8.
Is matching a fundamental accounting assumption?
No. Accrual is the assumption. Matching is a related concept that pairs a period’s costs with that period’s revenues. AS 1 says it does not deal with the matching process.
Official text: AS 1 (ICAI PDF) and icai.org.