The International Accounting Standards Board (IASB) has issued amendments to the IAS 1 and IFRS Practice Statement 2, which relate to the disclosure of accounting policies. The purpose of the amendments is to improve the clarity, structure, and overall quality of financial statements by enhancing the disclosure requirements relating to accounting policies.
The IASB identified that users of financial statements often find it challenging to understand the significant accounting policies used by an entity, which can impact their ability to assess the financial performance, position, and prospects of the entity. The amendments aim to address this issue by introducing new disclosure requirements that provide greater transparency and clarity around accounting policies.
The key changes introduced by the amendments are as follows:
A requirement for an entity to include a specific disclosure of its material accounting policies, rather than merely referencing them in the financial statements. This disclosure should include the methods used to apply them and any significant judgments made in the process.
The introduction of a new subheading in the financial statements, which provides an overview of the significant accounting policies that have been applied. The subheading should be structured in a way that makes it easy to understand and navigate.
A requirement to disclose any changes made to an entity's accounting policies during the reporting period and the reasons for them. Where possible, entities should provide an explanation of the financial impact of these changes.
A requirement to disclose any accounting policy choices made by an entity that have a significant impact on the financial statements. This disclosure should include the reasons for the choice and an explanation of the financial impact.
The amendments are intended to promote consistency and comparability between financial statements by establishing a clear and concise framework for disclosure of accounting policies. They are effective for annual periods beginning on or after January 1, 2023. Entities may choose to apply the amendments earlier, provided that they disclose this fact in their financial statements.
Overall, the amendments to IAS 1 and IFRS Practice Statement 2 represent an important milestone in the ongoing efforts to enhance the quality and usefulness of financial reporting. By improving the disclosure requirements relating to accounting policies, the amendments provide users of financial statements with greater transparency and clarity around the significant accounting policies used by entities. This is expected to result in more informed decision-making and greater confidence in financial markets.
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