Section 8

Section 8
Notes to the Financial Statement

SCOPE OF THIS SECTION
This section sets out the principles underlying information that is to be

presented in the notes to the financial statements and how to present it. Notes
contain information in addition to that presented in the statement of financial
position, statement of comprehensive income, income statement , combined
statement of income and retained earnings, statement of changes in equity,
and statement of cash flows. Notes provide narrative descriptions or
disaggregation of items presented in those statements and information about
items that do not qualify for recognition in those statements. In addition to the
requirements of this section, nearly every other section of this IFRS requires
disclosures that are normally presented in the notes.
STRUCTURE OF THE NOTES
• The notes shall:

(a) present information about the basis of preparation of the financial statements
and the specific accounting policies used.
(b) disclose the information required by this IFRS that is not presented elsewhere
in the financial statements; and
(c) provide information that is not presented elsewhere in the financial statements
but is relevant to an understanding of any of them.
• An entity shall, as far as practicable, present the notes in a systematic manner. An

entity shall cross-reference each item in the financial statements to any related
information in the notes.
Cont…
• Often the first note to the financial statements (i.e. positioned before the
statement of compliance) presents general information about the reporting
entity. This note commonly includes:
(i) information about the domicile and legal form of the entity, its country of
incorporation and the address of its registered .
(ii) a description of the nature of the entity’s operations and its principal
activities and
(iii) the date when the financial statements were authorized for issue and who
gave that authorization.
INFORMATION ABOUT JUDGEMENTS
• In some cases applying the group’s accounting policies requires the use of
judgments. In the process of applying the entity’s accounting policies,
management makes various judgments, apart from those involving estimations,
that can significantly affect the amounts it recognizes in the financial
statements. For example, management makes judgments in determining:
 Whether is more likely than not that an outflow of resources embodying
economic benefits will result from a present obligation that arises from past
events.
 Whether a lease transfers substantially all the risks and rewards incidental to
the ownership of an asset.

INFORMATION ABOUT
JUDGEMENTS
 when an entity transfers to the buyer the significant risks and rewards of
ownership of the goods sold.
 whether, in substance, particular sales of goods are financing arrangements
and therefore do not give rise to revenue from the sale of goods.
 whether the substance of the relationship between the entity and an
investee indicates that the entity has significant influence over the investee.
Cont…
• Because the IFRS for SMEs specifies different measurements for different
classifications of items, the classification of an item can have a significant effect on
the accounting for that item. Consider, for example, the measurement after initial
recognition of a building (whose fair value can be determined reliably on an
ongoing basis) that management found difficult to classify:
 If the building is an investment property it would be measured at its fair value.
 If the building is inventory it would be measured at the lower of its cost and its
estimated selling price less costs to complete and sell.
 If the building is property, plant and equipment it would be measured at its cost less
accumulated depreciation (if it is not impaired) and at its cost less accumulated
depreciation and accumulated impairment (if it is impaired).
INFORMATION ABOUT KEY SOURCES OF
ESTIMATION UNCERTAINTY
• 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.
(b) their carrying amount as at the end of the reporting period
Cont…
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 end of the reporting period. 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 of 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 items
such as the risk adjustment to cash flows or discount rates used, future
changes in salaries and future changes in prices affecting other costs.
COMPARE AND CONTRAST
DISCLOSURES OF FULL IFRS AND
NOTES OF IFRS FOR SME
• The IFRS for SMEs is drafted in plain language and includes significantly less guidance on how
to apply the principles.
• The disclosure requirements in the IFRS for SMEs are substantially reduced when compared
with the disclosure requirements in full IFRSs. The reasons for the reductions are of four
principal types:
(a) Some disclosures are not included because they relate to topics covered in full IFRSs that are
omitted from the IFRS for SMEs.
(b) Some disclosures are not included because they relate to recognition and measurement
principles in full IFRSs that have been replaced by simplifications in the IFRS for SMEs.
(c) Some disclosures are not included because they relate to options in full IFRSs that are not
included in the IFRS for SMEs.
(d) Some disclosures are not included on the basis of users’ needs or cost-benefit considerations.

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Section 8

Notes to the Financial Statement

This section sets out the principles underlying information that is to be

• The notes shall:

• An entity shall, as far as practicable, present the notes in a systematic manner. An

judgments. In the process of applying the entity’s accounting policies,

management makes various judgments, apart from those involving estimations,

that can significantly affect the amounts it recognizes in the financial

statements. For example, management makes judgments in determining:

 Whether is more likely than not that an outflow of resources embodying

the ownership of an asset.

ownership of the goods sold.

 whether, in substance, particular sales of goods are financing arrangements

 whether the substance of the relationship between the entity and an

Determining the carrying amounts of some assets and liabilities requires

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