Unlike U. S. GAAP, IFRS requires that an entity disclose (a) management’s judgments with the most significant effect on the financial statements, and (b) information about the major sources of estimation uncertainty that may result in a material adjustment to the carrying values of the entity’s assets and liabilities. These disclosure requirements are included in IAS 1, Presentation of Financial Statements. Paragraph 122 contains the requirement related to judgments, and paragraph 125 contains the requirement related to estimation uncertainty.
Read paragraphs 122 through 133 and paragraph BC83 of IAS 1.
1. What are the two examples of judgments that could have a significant impact on the financial statements?
2. What are four examples of estimation uncertainty that could result in a material adjustment in future years?
3. Consider an entity that reports an asset at fair value, where the fair value is based on recently observed market prices. If it is likely that this value might change significantly within the next year, should the entity disclose the estimation uncertainty? Explain your answer.