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Commission Regulation
(EC) No 1725/2003 of 29. September
2003 amended by Regulation (EC) No 2238/2004
and Regulation (EC) No 1910/2005
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Disclosure of
Accounting Policies
108. An entity shall
disclose in the summary of significant accounting policies:
(a) the measurement
basis (or bases) used in preparing the financial
statements; and
(b) the other
accounting policies used that are relevant to an
understanding
of the financial statements.
109. It is important
for users to be informed of the measurement basis or bases
used in the financial statements (for example, historical cost,
current cost, net realisable value, fair value or recoverable
amount) because the basis on which the financial statements
are prepared significantly affects their analysis. When more
than one measurement basis is used in the financial statements,
for example when particular classes of assets are revalued, it
is sufficient to provide an indication of the categories of
assets and liabilities to which each measurement basis is
applied.
110. In deciding
whether a particular accounting policy should be disclosed,
management considers whether disclosure would assist users in
understanding how transactions, other events and conditions
are reflected in the reported financial performance and
financial position. Disclosure of particular accounting
policies is especially useful to users when those policies are
selected from alternatives allowed in Standards and
Interpretations. An example is disclosure of whether a
venturer recognises its interest in a jointly controlled
entity using proportionate consolidation or the equity method
(see IAS 31 Interests in Joint Ventures). Some
Standards specifically require disclosure of particular
accounting policies, including choices made by management
between different policies they allow. For example, IAS 16
requires disclosure of the measurement bases used for classes
of property, plant and equipment. IAS 23 Borrowing Costs requires
disclosure of whether borrowing costs are recognised
immediately as an expense or capitalised as part of the cost
of qualifying assets.
111. Each entity
considers the nature of its operations and the policies that
the users of its financial statements would expect to be
disclosed for that type of entity. For example, an entity
subject to income taxes would be expected to disclose its
accounting policies for income taxes, including those
applicable to deferred tax liabilities and assets. When an
entity has significant foreign operations or transactions in
foreign currencies, disclosure of accounting policies for the
recognition of foreign exchange gains and losses would be
expected. When business combinations have occurred, the
policies used for measuring goodwill and minority interest are
disclosed.
112. An accounting
policy may be significant because of the nature of the entity’s
operations even if amounts for current and prior periods are
not material. It is also appropriate to disclose each
significant accounting policy that is not specifically
required by IFRSs, but is selected and applied in accordance
with IAS 8.
113. An entity shall
disclose, in the summary of significant accounting policies
or other notes, the judgements, apart from those involving
estimations (see paragraph 116), management has made in
the process of applying the entity’s
accounting policies that have the most
significant effect on the amounts recognised in the financial
statements.
114. In the process
of applying the entity’s accounting policies, management
makes various judgements, apart from those involving
estimations, that can significantly affect the amounts
recognised in the financial statements. For example,
management makes judgements in determining:
(a) whether
financial assets are held-to-maturity investments;
(b) when
substantially all the significant risks and rewards of
ownership of financial assets and lease assets are transferred
to other entities;
(c) whether, in
substance, particular sales of goods are financing
arrangements and therefore do not give rise to revenue; and
(d) whether the
substance of the relationship between the entity and a special
purpose entity indicates that the special purpose entity is
controlled by the entity.
115. Some of the
disclosures made in accordance with paragraph 113 are required
by other Standards. For example, IAS 27 requires an entity to
disclose the reasons why the entity’s ownership interest
does not constitute control, in respect of an investee that is
not a subsidiary even though more than half of its voting or
potential voting power is owned directly or indirectly through
subsidiaries. IAS 40 requires disclosure of the criteria
developed by the entity to distinguish investment property
from owner-occupied property and from property held for sale
in the ordinary course of business, when classification of the
property is difficult.
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