News July 2022 FRC publishes review of judgements and estimates

FRC publishes review of judgements and estimates

26 July 2022
The Financial Reporting Council (FRC) has today published its thematic review of judgements and estimates update.
 
Companies are required to disclose their more complex accounting judgements, as well as the most significant sources of estimation uncertainty. These disclosures allow readers to assess how the accounting policies applied have been affected by the judgements taken by management. They facilitate a better understanding of assumptions made about the future and the extent to which changes to those assumptions may affect a company’s future position.  


The FRC’s first thematic on the topic of judgement and estimation uncertainty disclosures was published in November 2017. Today’s updated review and CRR’s most recent routine monitoring in 2021/22 have identified some improvement in the overall quality of judgement and estimate disclosures since the 2017 report.
 
The FRC has, however, identified the following as areas where there is room for further improvement:
 
  • Companies should explicitly state whether estimates have a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
 
  • Sensitivity disclosures should be provided more frequently and in the way that is most meaningful to readers.
 
  • Companies should assess whether disclosure of climate-related significant judgements or assumptions and sources of estimation uncertainty are required by paragraphs 122 or 125 of IAS 1 and consider whether information about assumptions with a longer-term effect is required. 
 
  • Where additional estimate disclosures are provided, such as those carrying lower risk, having smaller impact or crystallising over a longer timeframe, they should be clearly distinguished from those with a short-term effect. 
 
To encourage improvement in the general quality of company disclosures, the review includes examples of good practice, including: quantified assumptions and amounts at risk of material adjustment; detailed explanations of management’s judgements and the nature of the uncertainties relating to significant estimates; and discussion of the effects of climate change on estimates. 
 
The full review is available here.
 

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William BoyackSenior Communications Manager