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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]Contents
8.2.1 Extract from FRS102-Section 8.2–8.4.
8.3 Disclosure of accounting policies.
8.3.1 Extract from FRS102-Section 8.5.
8.3.2.2 Sample Accounting policies.
8.3.2.2.1 General information.
8.3.2.2.2 Basis of preparation.
8.3.2.2.4.1 Basis of consolidation.
8.3.2.2.4.1.1 Subsidiary undertakings.
8.3.2.2.4.1.2 Associates and joint ventures.
8.3.2.2.4.1.3 Transactions eliminated on consolidation.
8.3.2.2.5 Business combinations and goodwill.
8.3.2.2.9 Contingent acquisition consideration.
8.3.2.2.11 General turnover accounting policy notes.
8.3.2.2.11.2 Turnover accounting policy for an insurance broker.
8.3.2.2.11.4 Turnover accounting policy note where turnover is derived from investments.
8.3.2.2.11.5 Turnover accounting policy for a software company.
8.3.2.2.11.6 Turnover accounting policy for a construction company.
8.3.2.2.12.1 Example using an accruals model.
8.3.2.2.12.2 Example using the performance model.
8.3.2.2.14 Dividend distribution.
8.3.2.2.16 Financial instruments.
8.3.2.2.16.1 (a) Trade and other debtors.
8.3.2.2.16.2 (b) Cash and cash equivalents.
8.3.2.2.16.3 (c) Other financial assets.
8.3.2.2.16.4 (d) Trade and other creditors.
8.3.2.2.16.6 (f) Derivatives (no hedge accounting)
8.3.2.2.16.7 Derivatives (where hedge accounting is applied)
8.3.2.2.16.7.1 Hedge Accounting.
8.3.2.2.16.7.1.1 Cash flow hedges.
8.3.2.2.16.7.1.2 Fair value hedges.
8.3.2.2.16.9 Offsetting financial instruments.
8.3.2.2.17 Compound financial instruments.
8.3.2.2.18.1 Environmental liabilities.
8.3.2.2.20.1 (a) Annual bonus plans.
8.3.2.2.20.2 (b) Annual bonus plans.
8.3.2.2.20.3 (c) Defined contribution pension plans.
8.3.2.2.20.4 (d) Defined benefit pension.
8.3.2.2.21 Preference share capital.
8.3.2.2.23 Related party transactions.
8.3.2.2.26 Property, plant and equipment.
8.3.2.2.28 Investment properties.
8.3.2.2.30 Extract of a leasing company.
8.3.2.2.35 Investment properties.
8.3.2.2.36 Biological assets – forestry.
8.3.2.2.37 Biological assets – Livestock (where a fair value model is adopted)
8.3.2.2.38 Biological assets – Forestry (where cost model is adopted)
8.3.2.2.39 Biological assets – Livestock (where cost model is adopted)
8.4 Information about judgements.
8.4.1 Extract from FRS102-Section 8.6.
8.5 Information about key sources of estimation uncertainty.
8.5.1 Extract from FRS102-Section 8.7.
8.5.2.2 Sample critical accounting judgements and estimates disclosures.
8.5.2.2.1 Critical Accounting Judgements and Estimates.
8.5.2.2.3 Inventory provisioning.
8.5.2.2.4 Providing for doubtful debts.
8.5.2.2.5 Valuation of investment properties.
8.5.2.2.7 Defined benefit pension scheme.
8.5.2.2.9 Tax provisions and deferred tax assets.
8.5.2.2.10 Contingent consideration.
8.5.2.2.11 Business combinations.
8.5.2.2.12 Establishing useful lives for amortisation of goodwill and intangible assets.
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8.5 Information About Key Sources of Estimation Uncertainty
8.5.1 Extract from FRS102-Section 8.7
8.7 An entity shall disclose in the notes information about:
– the key assumptions concerning the future,
– and other key sources of estimation uncertainty at the reporting 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 end of the reporting period
8.5.2 OmniPro comment
8.5.2.1 Analysis
Section 8.7 of FRS 102 requires disclosure of key sources of estimation uncertainty:
This requires disclosures of information about:
- The key assumptions concerning the future used in the calculation.
- Any other source of estimations uncertainty at period end that has a risk of causing a material adjustment giving details of the nature of the carrying amount.
This disclosure of this information allows users to assess the judgements and estimates made by the entity in preparing the financial statements. This has already been dealt with through each section of the standard within the website in relation to the disclosure requirements. Examples of disclosures required include:
- Nature of the assumptions;
- Sensitivity of carrying amounts to changes in key assumptions and estimates underlying the calculation;
- Explanation of changes made to past assumptions where material.
Where judgements are made they generally relate to future items which cannot be determined with certainty.
8.5.2.2 Sample critical accounting judgements and estimates disclosures
Example 2: Critical Accounting Judgements and Estimates:
8.5.2.2.1 Critical Accounting Judgements and Estimates
The preparation of these financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
Judgements and estimates are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
8.5.2.2.2 Establishing useful economic lives for depreciation purposes of property, plant and equipment
Long-lived assets, consisting primarily of property, plant and equipment, comprise a significant portion of the total assets. The annual depreciation charge depends primarily on the estimated useful lives of each type of asset and estimates of residual values. The directors regularly review these asset useful lives and change them as necessary to reflect current thinking on remaining lives in light of prospective economic utilisation and physical condition of the assets concerned. Changes in asset useful lives can have a significant impact on depreciation and amortisation charges for the period. Detail of the useful lives is included in the accounting policies.
8.5.2.2.3 Inventory provisioning
The company is involved in the construction industry and are engaged in a number of long term contracts at the year end (adjust as applicable). As a result, it is necessary to consider the recoverability of the cost of inventory and the associated provisioning required. When calculating the inventory provision, management considers the stage of completion, the estimated realisable value and the estimated costs to completion. The level of provision required is reviewed on an on-going basis. See note X where the provision has been disclosed.
8.5.2.2.4 Providing for doubtful debts
The company makes an estimate of the recoverable value of trade and other debtors. The company uses estimates based on historical experience in determining the level of debts, which the company believes, will not be collected. These estimates include such factors as the current credit rating of the debtor, the ageing profile of debtors and historical experience. Any significant reduction in the level of customers that default on payments or other significant improvements that resulted in a reduction in the level of bad debt provision would have a positive impact on the operating results. The level of provision required is reviewed on an on-going basis. See note X where the provision has been disclosed.
8.5.2.2.5 Valuation of investment properties
The company revalue its investment property to fair value based on advice from independent expert valuers. See note X for details of this valuation.
8.5.2.2.6 Provisions
Provision is made for asset retirement obligations, dilapidations and contingencies. These provisions require managements best estimate of the costs that will be incurred based on legislative and contractual requirements. In addition, the timing of the cash flows and the discount rates used to establish net present value of the obligations require management judgements. Provisions are detailed at note X.
8.5.2.2.7 Defined benefit pension scheme
The Group operates a number of post-employment defined benefit retirement schemes. The pension costs and liability calculations in respect of the defined benefit retirement schemes are calculated and determined by independent actuaries. There are inherent uncertainties surrounding the financial assumptions adopted in defined benefit retirement scheme valuations, particularly in relation to discount rate, price inflation, life expectancy and mortality assumptions. The assumptions reflect historical experience and current trends.
8.5.2.2.8 Impairments
Property, plant and equipment, goodwill and intangible asset impairment reviews involve a range of judgemental decisions largely related to the assumptions used to assess the value in use of the assets being tested. These assumptions typically include long term business and macro-economic projections, cash flow forecasts and associated discount rates. See details of the impairment at note X.
8.5.2.2.9 Tax provisions and deferred tax assets
Judgements are made in relation to the calculation of certain aspects of the year end tax provisions and the respective tax charge. The management used external professional advice to support the year end provisions.
The recognition of a deferred tax asset is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset exists. ‘Income taxes’ and ‘Deferred tax assets and liabilities’ are disclosed in notes XXX.
8.5.2.2.10 Contingent consideration
The consideration arising on the acquisition of XXXXX Limited included a portion which is contingent on future earnings. The fair value of contingent consideration is required to be calculated at the acquisition date and was estimated at CUXXX. Due to a better than anticipated performance the estimate increased to CUXXXX at the year end. As set out in note X, the increase/decrease in this estimate of CUXXXX was charged to goodwill prospectively in line with Section 19 of FRS 102. This contingent consideration has been discounted, the discount rate used itself is subject to judgement. See details of the contingent consideration at note X which the best estimate of the future obligation at this point in time.
8.5.2.2.11 Business combinations
When acquiring a business, the Group/Company is required to bring acquired assets and liabilities on to the Consolidated Balance Sheet at their fair value, the determination of which requires a significant degree of estimation and judgement. Acquisitions may also result in intangible benefits being brought into the Group, some of which qualify for recognition as intangible assets while other such benefits do not meet the recognition requirements of FRS 102 and therefore form part of goodwill. Judgement is required in the assessment and valuation of these intangible assets, including assumptions on the timing and amount of future cash flows generated by the assets and the selection of an appropriate discount rate. Depending on the nature of the assets and liabilities acquired, determined provisional fair values may be associated with uncertainty and possibly adjusted subsequently as allowed by Section 19 of FRS 102. Business combinations are disclosed in note X.
8.5.2.2.12 Establishing useful lives for amortisation of goodwill and intangible assets
Long-lived assets, consisting primarily of goodwill and intangibles, comprise a significant portion of the total assets. The annual amortisation charge depends primarily on the estimated useful economic lives of each type of asset and estimates of residual values. The directors regularly review these asset lives and change them as necessary to reflect current thinking on remaining lives in light of prospective economic utilisation and physical condition of the assets concerned. Changes in asset useful economic lives can have a significant impact on amortisation charges for the period. Detail of the useful lives is included in the accounting policies.
8.5.2.2.13 Exceptional items
Exceptional items are those that in the Directors’ view are required to be separately disclosed by virtue of their size or incidence to enable a full understanding of the Company’s’ financial performance. The Company believe that this presentation provides a more informative analysis as it highlights one off items. Such items may include significant restructuring costs (add as required). Judgement is required as to what management determine as exceptional items.
8.5.2.2.14 Rebates
The company receives significant rebates from its suppliers. At the year end date an estimate has been made for these rebates based on the facts and circumstances at that time and based on evidence reviewed after the year end. These rebates have been included in accrued income at note X.
8.5.2.2.15 Other areas
Other areas where accounting estimates and judgements are required, though the impact on the (consolidated) financial statements is not considered as significant as those mentioned above, are financial assets investments (note XX), investment in associate (note XX), rebates included in trade and other payables and financial instruments.
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Examples
Example 1: Extract of examples of accounting policies note.
Example 2: Critical Accounting Judgements and Estimates
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