IFRS Accounting Standards* require disclosure of material accounting policies. These include:
| Changes | Application of new standards resulting in material changes requires disclosure of policies applied |
| Options | Accounting polices need to disclose options applied |
| Own developed | Without specific guidance in the Accounting Standards users require what has been used |
| Judgements & Estimates | Line item that include significant judgements and estimates require clarification on what was applied |
| Complex | Application of more than one Standard in the transaction/balance requires explanations on what was applied |
Your accounting policy disclosures should be:
- Relevant – Only include information that is essential for understanding your
- Specific – Customize to your entity’s actual practices rather than using
templates, while ensuring alignment with the requirements.
- Integrated – Embed judgements and estimates where they apply, not in
- Decluttered – Cut the fluff, keep the
Judgements & Estimates
Judgements and estimates form an integral part of the financial statements. While entities often include these as mere compliance listings, they often lack clarity regarding the reasons and methods behind them. The Accounting Standards distinguish between judgements and estimates.
Judgements involve decisions about how accounting policies are applied and why, while estimates involve assumptions about future outcomes that affect the measurement of assets and liabilities.
Consider what to disclose by applying the same principles of relevance and specificity.
Include accounting policies, judgements and estimates in the relevant notes – this will avoid irrelevant, non-specific. non-integrated information
Practical Example: Property, plant and equipment (PPE)
| Element | What to Say | Why It Matters |
| Accounting Policy | Except for land and buildings measured using the revaluation approach, all other classes of PPE is measured at cost less accumulated depreciation andimpairment. | This shows the options applied for measurement |
| Judgement |
Land and buildings are measured using the revaluation model to reflect current market values, as management expects to sell or repurpose these assets in the foreseeable future, making fair value information more relevant. |
Explains measurement decision |
| Estimates |
Fair values for land and buildings were determined using recent market prices for comparable properties in similar locations, reflecting current conditions and observable inputs. The average useful lives of classes of assets is Buildings – 30 yrs; Vehicles – 5–14 yrs. Residual values are based on market data. |
Shows assumptions relating to estimates applied |
Golden Rule: If It Doesn’t Change the Story, Don’t Tell It
- Remove generic definitions
- Remove generic policies g. recognition principles unless judgements were applied.
- Provide descriptions of the classes and group them together when they share the same measurements.
- Avoid accounting policies for disclosure items unless they include choices / significant judgements.
- Avoid lists of ‘obvious’ estimates without providing specific
- Consider items where technical opinions/assistance were obtained for
Author
Belinda van der Merwe (CA)SA
Belinda.v@nexia-sabt.co.za
