Controllership · Month Close · Audit Readiness

Accounting Policy and Estimate Memo: AS 1 and AS 5 Evidence File

Finin2min Controllership Desk·June 2026·9 min readPOLICY MEMOValidated: 17 June 2026

Accounting policies and estimates should be written before disputes arise. The memo explains how management recognises revenue, expenses, assets and provisions consistently.

Detailed analysis

Why this matters
AS 1 deals with accounting policy disclosure and AS 5 deals with net profit/loss, prior-period items and accounting policy changes. A memo helps ensure consistent treatment across periods and audit teams.

Practical example

Example
Company changes depreciation estimate for servers after migrating to cloud. Finance documents reason, technical evidence, impact on current/future depreciation and approval before updating the fixed asset module.

Evidence and control checklist

Area	What to check	Evidence to save
Policy inventory	Revenue, inventory, PPE, provisions and FX policies.	Accounting policy manual.
Estimates	Useful life, bad debts, NRV, provisions and fair estimates.	Estimate workings and assumptions.
Changes	Policy/estimate changes and impact.	Change memo and approval.
Prior-period items	Nature, amount and correction logic.	Prior-period analysis and journal support.
Disclosure	Financial statement note support.	Disclosure checklist and draft note.

Common mistakes

Avoid these mistakes

Policy copied from old FS without current review.
No support for estimates.
Changing estimate to hit target profit.
Not disclosing material changes.
No approval for policy change.

Validated source note

Validated on 17 June 2026
Based only on official India Code, MCA and ICAI source pages listed below. Check the latest Companies Act, Schedule III, accounting standards, Ind AS/AS applicability and auditor guidance before closing or filing.

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Official sources used

This article is intentionally source-limited to official India Code, MCA and ICAI material. Source validation date: 17 June 2026. Verify final positions with latest Companies Act, Schedule III, accounting standards, Ind AS/AS applicability and auditor guidance before closing or filing.

FAQs

Why write accounting policy memo? ▾

To support consistency and financial-statement disclosure.

What are accounting estimates? ▾

Judgements like useful life, provisions, NRV and doubtful debts.

Can estimates change? ▾

Yes, with rationale and proper accounting treatment.

What are prior-period items? ▾

Material items related to prior periods identified in current period.

Who approves policy changes? ▾

Management/controller and auditors/board as relevant.