Chapter 3, Problem 1BCC

Basis for Conclusions Case 1: Judgment and Estimation Uncertainty

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 BC77 through BC84 in the basis for conclusions in IAS 1. What reasons did the Board give for requiring the disclosures about judgment? What reasons did the Board give for requiring the disclosures about estimation uncertainty?