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Commission Regulation (EC) No
2238/2004 of 29 December 2004 amending Regulation (EC) No 1725/2003
adopting certain international accounting standards in accordance
with Regulation (EC) No 1606/2002 of the European Parliament and of
the Council, as regards IASs IFRS 1, IASs Nos 1 to 10, 12 to 17, 19
to 24, 27 to 38, 40 and 41 and SIC Nos 1 to 7, 11 to 14, 18 to 27
and 30 to 33
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Key Sources of
Estimation Uncertainty
116. An entity shall
disclose in the notes information about the key assumptions
concerning the future, and other key sources of estimation
uncertainty at the balance sheet date, that have a significant
risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year.In
respect of those assets and liabilities, the notes shall
includedetails of:
(a) their nature;
and
(b) their carrying
amount as at the balance sheet date.
117. Determining the
carrying amounts of some assets and liabilities requires
estimation of the effects of uncertain future events on those
assets and liabilities at the balance sheet date. For example,
in the absence of recently observed market prices used to
measure the following assets and liabilities, future-oriented
estimates are necessary to measure the recoverable amount of
classes of property, plant and equipment, the effect of
technological obsolescence on inventories, provisions subject
to the future outcome of litigation in progress, and long-term
employee benefit liabilities such as pension obligations.
These estimates involve assumptions about such items as the
risk adjustment to cash flows or discount rates used, future
changes in salaries and future changes in prices affecting
other costs.
118. The key
assumptions and other key sources of estimation uncertainty
disclosed in accordance with paragraph 116 relate to the
estimates that require management’s most difficult,
subjective or complex judgements. As the number of variables
and assumptions affecting the possible future resolution of
the uncertainties increases, those judgements become more
subjective and complex, and the potential for a consequential
material adjustment to the carrying amounts of assets and
liabilities normally increases accordingly.
119. The disclosures
in paragraph 116 are not required for assets and liabilities
with a significant risk that their carrying amounts might
change materially within the next financial year if, at the
balance sheet date, they are measured at fair value based on
recently observed market prices (their fair values might
change materially within the next financial year but these
changes would not arise from assumptions or other sources of
estimation uncertainty at the balance sheet date).
120. The disclosures
in paragraph 116 are presented in a manner that helps users of
financial statements to understand the judgements management
makes about the future and about other key sources of
estimation uncertainty. The nature and extent of the
information provided vary according to the nature of the
assumption and other circumstances. Examples of the types of
disclosures made are:
(a) the nature of
the assumption or other estimation uncertainty;
(b) the sensitivity
of carrying amounts to the methods, assumptions and estimates
underlying their calculation, including the reasons for the
sensitivity;
(c) the expected
resolution of an uncertainty and the range of reasonably
possible outcomes within the next financial year in respect of
the carrying amounts of the assets and liabilities affected;
and
(d) an explanation
of changes made to past assumptions concerning those assets
and liabilities, if the uncertainty remains unresolved.
121. It is not
necessary to disclose budget information or forecasts in
making the disclosures in paragraph 116.
122. When it is
impracticable to disclose the extent of the possible effects
of a key assumption or another key source of estimation
uncertainty at the balance sheet date, the entity discloses
that it is reasonably possible, based on existing knowledge,
that outcomes within the next financial year that are
different from assumptions could require a material adjustment
to the carrying amount of the asset or liability affected. In
all cases, the entity discloses the nature and carrying amount
of the specific asset or liability (or class of assets or
liabilities) affected by the assumption.
123. The disclosures
in paragraph 113 of particular judgements management made in
the process of applying the entity’s accounting policies do
not relate to the disclosures of key sources of estimation
uncertainty in paragraph 116.
124. The disclosure
of some of the key assumptions that would otherwise be
required in accordance with paragraph 116 is required by other
Standards. For example, IAS 37 requires disclosure, in
specified circumstances, of major assumptions concerning
future events affecting classes of provisions. IAS 32 requires
disclosure of significant assumptions applied in estimating
fair values of financial assets and financial liabilities that
are carried at fair value. IAS 16 requires disclosure of
significant assumptions applied in estimating fair values of
revalued items of property, plant and equipment.
Other Disclosures
125. An entity shall
disclose in the notes:
(a) the amount of
dividends proposed or declared before the financial
statements were authorised for issue but not recognised
as a distribution to equity holders during the period,
and the related amount per share; and
(b) the amount of
any cumulative preference dividends not recognised.
126. An entity shall
disclose the following, if not disclosed elsewhere in information
published with the financial statements:
(a) the domicile and
legal form of the entity, its country of incorporation
and the address of its registered office (or principal
place of business, if different from the registered
office);
(b) a description of
the nature of the entity’s operations and its
principal
activities; and
(c) the name of the
parent and the ultimate parent of the group.
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