Critical judgments are frequently raised as an issue by the Financial Reporting Council in its annual Corporate Reporting Reviews as they are not clearly identified or explained. Rachel Farris FCA CTA, Croner-i, summarises the requirements around judgments set out in IAS 1
IAS 1 Presentation of Financial Statements requires that critical judgments and sources of estimation uncertainty be considered separately. First, IAS 1 requires disclosures of judgments that do not involve estimation uncertainty. This relates to the judgments 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.
Secondly, IAS 1 requires information about estimation uncertainty. This relates to the assumptions management makes about the future, and other major sources of estimation uncertainty – specifically where there is a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
