Commission Regulation (EC) No 1126/2008Show full title

Notes

Structure

103 The notes shall:

(a)

present information about the basis of preparation of the financial statements and the specific accounting policies used in accordance with paragraphs 108-115;

(b)

disclose the information required by IFRSs that is not presented on the face of the balance sheet, income statement, statement of changes in equity or cash-flow statement; and

(c)

provide additional information that is not presented on the face of the balance sheet, income statement, statement of changes in equity or cash-flow statement, but is relevant to an understanding of any of them.

104 Notes shall, as far as practicable, be presented in a systematic manner. Each item on the face of the balance sheet, income statement, statement of changes in equity and cash-flow statement shall be cross-referenced to any related information in the notes.

105 Notes are normally presented in the following order, which assists users in understanding the financial statements and comparing them with financial statements of other entities:

(a)

a statement of compliance with IFRSs (see paragraph 14);

(b)

a summary of significant accounting policies applied (see paragraph 108);

(c)

supporting information for items presented on the face of the balance sheet, income statement, statement of changes in equity and cash-flow statement, in the order in which each statement and each line item is presented; and

(d)

other disclosures, including:

(i)

contingent liabilities (see IAS 37) and unrecognised contractual commitments; and

(ii)

non-financial disclosures, e.g. the entity's financial risk management objectives and policies (see IFRS 7).

106 In some circumstances, it may be necessary or desirable to vary the ordering of specific items within the notes. For example, information on changes in fair value recognised in profit or loss may be combined with information on maturities of financial instruments, although the former disclosures relate to the income statement and the latter relate to the balance sheet. Nevertheless, a systematic structure for the notes is retained as far as practicable.

107 Notes providing information about the basis of preparation of the financial statements and specific accounting policies may be presented as a separate component of the financial statements.

Disclosure of accounting policies

108 An entity shall disclose in the summary of significant accounting policies:

(a)

the measurement basis (or bases) used in preparing the financial statements; and

(b)

the other accounting policies used that are relevant to an understanding of the financial statements.

109 It is important for users to be informed of the measurement basis or bases used in the financial statements (for example, historical cost, current cost, net realisable value, fair value or recoverable amount) because the basis on which the financial statements are prepared significantly affects their analysis. When more than one measurement basis is used in the financial statements, for example when particular classes of assets are revalued, it is sufficient to provide an indication of the categories of assets and liabilities to which each measurement basis is applied.

110 In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users when those policies are selected from alternatives allowed in standards and interpretations. An example is disclosure of whether a venturer recognises its interest in a jointly controlled entity using proportionate consolidation or the equity method (see IAS 31 Interests in joint ventures). Some standards specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, IAS 16 requires disclosure of the measurement bases used for classes of property, plant and equipment. IAS 23 Borrowing costs requires disclosure of whether borrowing costs are recognised immediately as an expense or capitalised as part of the cost of qualifying assets.

111 Each entity considers the nature of its operations and the policies that the users of its financial statements would expect to be disclosed for that type of entity. For example, an entity subject to income taxes would be expected to disclose its accounting policies for income taxes, including those applicable to deferred tax liabilities and assets. When an entity has significant foreign operations or transactions in foreign currencies, disclosure of accounting policies for the recognition of foreign exchange gains and losses would be expected. When business combinations have occurred, the policies used for measuring goodwill and minority interest are disclosed.

112 An accounting policy may be significant because of the nature of the entity's operations even if amounts for current and prior periods are not material. It is also appropriate to disclose each significant accounting policy that is not specifically required by IFRSs, but is selected and applied in accordance with IAS 8.

113 An entity shall disclose, in the summary of significant accounting policies or other notes, the judgements, apart from those involving estimations (see paragraph 116), that management has made in the process of applying the entity's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

114 In the process of applying the entity's accounting policies, management makes various judgements, apart from those involving estimations, that can significantly affect the amounts recognised in the financial statements. For example, management makes judgements in determining:

(a)

whether financial assets are held-to-maturity investments;

(b)

when substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other entities;

(c)

whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and

(d)

whether the substance of the relationship between the entity and a special purpose entity indicates that the special purpose entity is controlled by the entity.

115 Some of the disclosures made in accordance with paragraph 113 are required by other standards. For example, IAS 27 requires an entity to disclose the reasons why the entity's ownership interest does not constitute control, in respect of an investee that is not a subsidiary even though more than half of its voting or potential voting power is owned directly or indirectly through subsidiaries. IAS 40 requires disclosure of the criteria developed by the entity to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business, when classification of the property is difficult.

Key sources of estimation uncertainty

116 An entity shall disclose in the notes information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:

(a)

their nature; and

(b)

their carrying amount as at the balance sheet date.

117 Determining the carrying amounts of some assets and liabilities requires estimation of the effects of uncertain future events on those assets and liabilities at the balance sheet date. For example, in the absence of recently observed market prices used to measure the following assets and liabilities, future-oriented estimates are necessary to measure the recoverable amount of classes of property, plant and equipment, the effect of technological obsolescence on inventories, provisions subject to the future outcome of litigation in progress, and long-term employee benefit liabilities such as pension obligations. These estimates involve assumptions about such items as the risk adjustment to cash flows or discount rates used, future changes in salaries and future changes in prices affecting other costs.

118 The key assumptions and other key sources of estimation uncertainty disclosed in accordance with paragraph 116 relate to the estimates that require management's most difficult, subjective or complex judgements. As the number of variables and assumptions affecting the possible future resolution of the uncertainties increases, those judgements become more subjective and complex, and the potential for a consequential material adjustment to the carrying amounts of assets and liabilities normally increases accordingly.

119 The disclosures in paragraph 116 are not required for assets and liabilities with a significant risk that their carrying amounts might change materially within the next financial year if, at the balance sheet date, they are measured at fair value based on recently observed market prices (their fair values might change materially within the next financial year but these changes would not arise from assumptions or other sources of estimation uncertainty at the balance sheet date).

120 The disclosures in paragraph 116 are presented in a manner that helps users of financial statements to understand the judgements management makes about the future and about other key sources of estimation uncertainty. The nature and extent of the information provided vary according to the nature of the assumption and other circumstances. Examples of the types of disclosures made are:

(a)

the nature of the assumption or other estimation uncertainty;

(b)

the sensitivity of carrying amounts to the methods, assumptions and estimates underlying their calculation, including the reasons for the sensitivity;

(c)

the expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected; and

(d)

an explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved.

121 It is not necessary to disclose budget information or forecasts in making the disclosures in paragraph 116.

122 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 balance sheet date, the entity discloses that it is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the asset or liability affected. In all cases, the entity discloses the nature and carrying amount of the specific asset or liability (or class of assets or liabilities) affected by the assumption.

123 The disclosures in paragraph 113 of particular judgements management made in the process of applying the entity's accounting policies do not relate to the disclosures of key sources of estimation uncertainty in paragraph 116.

124 The disclosure of some of the key assumptions that would otherwise be required in accordance with paragraph 116 is required by other standards. For example, IAS 37 requires disclosure, in specified circumstances, of major assumptions concerning future events affecting classes of provisions. IFRS 7 requires disclosure of significant assumptions applied in estimating fair values of financial assets and financial liabilities that are carried at fair value. IAS 16 requires disclosure of significant assumptions applied in estimating fair values of revalued items of property, plant and equipment.

Capital

124A An entity shall disclose information that enables users of its financial statements to evaluate the entity's objectives, policies and processes for managing capital.

124B To comply with paragraph 124A, the entity discloses the following:

(a)

qualitative information about its objectives, policies and processes for managing capital, including (but not limited to):

(i)

a description of what it manages as capital;

(ii)

when an entity is subject to externally imposed capital requirements, the nature of those requirements and how those requirements are incorporated into the management of capital; and

(iii)

how it is meeting its objectives for managing capital;

(b)

summary quantitative data about what it manages as capital. Some entities regard some financial liabilities (e.g. some forms of subordinated debt) as part of capital. Other entities regard capital as excluding some components of equity (e.g. components arising from cash flow hedges);

(c)

any changes in (a) and (b) from the previous period;

(d)

whether during the period it complied with any externally imposed capital requirements to which it is subject;

(e)

when the entity has not complied with such externally imposed capital requirements, the consequences of such non-compliance.

These disclosures shall be based on the information provided internally to the entity's key management personnel.

124C An entity may manage capital in a number of ways and be subject to a number of different capital requirements. For example, a conglomerate may include entities that undertake insurance activities and banking activities, and those entities may also operate in several jurisdictions. When an aggregate disclosure of capital requirements and how capital is managed would not provide useful information or distorts a financial statement user's understanding of an entity's capital resources, the entity shall disclose separate information for each capital requirement to which the entity is subject.

Other disclosures

125 An entity shall disclose in the notes:

(a)

the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to equity holders during the period, and the related amount per share; and

(b)

the amount of any cumulative preference dividends not recognised.

126 An entity shall disclose the following, if not disclosed elsewhere in information published with the financial statements:

(a)

the domicile and legal form of the entity, its country of incorporation and the address of its registered office (or principal place of business, if different from the registered office);

(b)

a description of the nature of the entity's operations and its principal activities; and

(c)

the name of the parent and the ultimate parent of the group.