Major sources of estimation uncertainty

Learning objectives

• Identify the major sources of estimation uncertainty to be disclosed.L2
• Explain the next-financial-year horizon for the risk of a material adjustment.L2, L3

Normative references

• IAS 1 §125An entity discloses information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• For its notes, Atlas SA identifies two matters (case facts). Matter 1: after analysing its contracts, management concludes that Atlas acts on its own account in a trading activity; this conclusion involves no estimation and has the most significant effect on the revenue recognised. Matter 2: the measurement of a litigation provision rests on assumptions about the outcome of a lawsuit and carries a significant risk of a material adjustment to its carrying amount within the next financial year. How does IAS 1 treat these two matters in the notes?L2