Shyam agarwalshyam agarwal asked 7 months ago

Is it compulsory to prepare books of accounts on accrual basis?

1 Answers
RaviRavi Staff answered 7 months ago

If it is level I entity as per applicability of AS or if required by law like company act accrual is must and if not followed then qualify. If not level I or not required by law then describe in audit report no need to qualify.
So question should have further elaborated whether it is for level entity or requirement of law. In this question you can add it is a level I entity.
Below text is form ICAI Module
Financial Statements Prepared on a Basis other than Accrual – With regard to the fundamental accounting assumption of accrual, the Council of the Institute has made a specific announcement that in respect of individuals/bodies covered by para AS I – Disclosure of Accounting Policies above, the auditor should examine whether the financial statements have been prepared on accrual basis.

In cases where the statute governing the enterprise requires the preparation and presentation of financial statements on accrual basis but the financial statements have not been so prepared, the
auditor should qualify his report.

On the other hand, where there is no statutory requirement for preparation and presentation of financial statements on accrual basis, and the financial statements have been prepared on a basis other than ‘accrual’, the auditor should describe in his audit report, the basis of accounting followed, without necessarily making it a subject matter of a qualification.
In such a case the auditor should also examine whether those provisions of the accounting standards which are applicable in the context of basis of accounting followed by the enterprise have been
complied with or not and consider making suitable disclosures/qualifications in his audit report
accordingly.