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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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Changes in
Accounting Estimates
32. As a result of
the uncertainties inherent in business activities, many items
in financial statements cannot be measured with precision but
can only be estimated. Estimation involves judgements based on
the latest available, reliable information. For example,
estimates may be required of:
(a) bad debts;
(b) inventory
obsolescence;
(c) the fair value
of financial assets or financial liabilities;
(d) the useful lives
of, or expected pattern of consumption of the future economic
benefits embodied in, depreciable assets; and
(e) warranty
obligations.
33. The use of
reasonable estimates is an essential part of the preparation
of financial statements and does not undermine their
reliability.
34. An estimate may
need revision if changes occur in the circumstances on which
the estimate was based or as a result of new information or
more experience. By its nature, the revision of an estimate
does not relate to prior periods and is not the correction of
an error.
35. A change in the
measurement basis applied is a change in an accounting policy,
and is not a change in an accounting estimate. When it is
difficult to distinguish a change in an accounting policy from
a change in an accounting estimate, the change is treated as a
change in an accounting estimate.
36. The effect of a
change in an accounting estimate, other than a change
to which paragraph 37 applies, shall be recognised prospectively
by including it in profit or loss in:
(a) the period of
the change, if the change affects that period only;
or
(b) the period of
the change and future periods, if the change affects
both.
37. To the extent
that a change in an accounting estimate gives rise to changes
in assets and liabilities, or relates to an item of equity, it
shall be recognised by adjusting the carrying amount of
the related asset, liability or equity item in
the period of the change.
38. Prospective
recognition of the effect of a change in an accounting
estimate means that the change is applied to transactions,
other events and conditions from the date of the change in
estimate. A change in an accounting estimate may affect only
the current period’s profit or loss, or the profit or loss
of both the current period and future periods. For example, a
change in the estimate of the amount of bad debts affects only
the current period’s profit or loss and therefore is
recognised in the current period. However, a change in the
estimated useful life of, or the expected pattern of
consumption of the future economic benefits embodied in, a
depreciable asset affects depreciation expense for the current
period and for each future period during the asset’s
remaining useful life. In both cases, the effect of the change
relating to the current period is recognised as income or
expense in the current period. The effect, if any, on future
periods is recognised as income or expense in those future
periods.
Disclosure
39. An entity shall
disclose the nature and amount of a change in an accounting
estimate that has an effect in the current period or is
expected to have an effect in future periods, except for
the disclosure of the effect on future periods
when it is impracticable to estimate that effect.
40. If the amount of
the effect in future periods is not disclosed because estimating
it is impracticable, an entity shall disclose that fact.
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