The International Accounting Standards Board (IASB) issued amendments to the IAS 8, which relate to the definition of accounting estimates. The purpose of the amendments is to clarify the definition of accounting estimates and to enhance the disclosure requirements relating to them.
The IASB identified that the definition of accounting estimates was vague and may have led to confusion in the application of IFRS. The amendments aim to address this issue by providing a more precise definition of accounting estimates that will assist entities in determining when a specific judgment is required to be exercised.
The key changes introduced by the amendments are as follows:
A new definition of "accounting estimates" that defines an accounting estimate as "an approximation of the amount to be recognized in financial statements in respect of a specific item, transaction or event, where that approximation is subject to estimation uncertainty".
A clarification of the term "estimation uncertainty", which is now defined as "the susceptibility of an accounting estimate, at a given date, to an inherent lack of precision in its measurement".
A requirement to disclose the assumptions used in making accounting estimates, which includes a description of the method used, the key assumptions made, and any significant uncertainties that affect the estimates.
A requirement to disclose any significant changes made to accounting estimates during the period and the reasons for those changes.
The amendments are intended to promote consistency and comparability between financial statements by establishing a clear and concise framework for the disclosure of accounting estimates. They are effective for annual periods beginning on or after January 1, 2022. Entities may choose to apply the amendments earlier, provided that they disclose this fact in their financial statements.
Overall, the amendments to IAS 8 represent an important milestone in the ongoing efforts to enhance the quality and usefulness of financial reporting. By providing a more precise definition of accounting estimates and enhancing the disclosure requirements relating to them, the amendments provide users of financial statements with greater transparency and clarity around the significant accounting estimates used by entities. This is expected to result in more informed decision-making and greater confidence in financial markets.
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