Think of AS 1 as the rule that says: "Tell your reader how you've cooked the books — legally." When Rajesh & Co. Pvt. Ltd. prepares its Balance Sheet, it makes dozens of choices — should inventory be valued at FIFO or Weighted Average? Should depreciation be SLM or WDV? AS 1 says: whatever choices you make, disclose them clearly so that anyone reading the financials can understand and compare them meaningfully.
AS 1 rests on three Fundamental Accounting Assumptions that are so widely accepted that if a company is following them, it doesn't even need to say so — they're assumed by default. These are: Going Concern (the business will keep running, not shut down tomorrow), Consistency (same policies year after year), and Accrual (income and expenses recognised when earned/incurred, not when cash moves). Here's the exam-critical flip: if any of these assumptions is not followed, that fact must be disclosed with reasons. This is asked frequently as a 4-mark question — examiners love asking "when is disclosure required under AS 1?" and students often get it backwards.
Beyond the big three assumptions, AS 1 also covers accounting policies — the specific principles, bases, and methods a company adopts. The standard says policies must be chosen to give a true and fair view, and they should follow the principles of Prudence (don't anticipate profits, but provide for all known losses), Substance over Form (economic reality over legal form), and Materiality (only disclose policies significant enough to affect decisions). All significant accounting policies must be disclosed in one place — typically as Note 1 to the financial statements. A change in accounting policy is allowed only if required by law, by an accounting standard, or if it results in a more appropriate presentation. And crucially, the effect of such a change must be disclosed — if it's not ascertainable, that too must be stated. This is where students lose marks: they mention the change but forget to quantify its effect.