Tip #3 to Improve the financial statements – Disclose information on judgements, assumptions, estimates and uncertainties

Tip #3 to Improve the financial statements – Disclose information on judgements, assumptions, estimates and uncertainties

Entities are required to provide information where judgement, assumptions, and estimation uncertainty are applied in the preparation of the financial statements. This is an area where entities have historically provided either no, or poor, information. Given the uncertain environment within which entities will be preparing their financial statements as a result of the COVID-19 pandemic, there is an increased need to provide this type of information to users of the financial statements.

Entities should disclose information on estimates and uncertainties that require management’s most difficult, subjective or complex judgements.

GRAP 1 requires the following information to be disclosed in the notes to the financial statements, specifically where there is a significant risk of a material adjustment to the carrying amounts of assets and liabilities in the next financial year:

• Key assumptions concerning the future, for example, assumptions such as projected cash flows and discount rates used in impairing assets.
• Other key sources of estimation uncertainty at the reporting date, for example, where unobservable data is used to measure assets at fair value.

For the affected assets and liabilities, the notes should also include details of: (a) their nature; and (b) their carrying amount as at the reporting date.

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 reporting date, an entity discloses that material adjustments may be required in the next financial year as a result of changes in assumptions used at the reporting date.