Disclosure of Accounting PoliciesDisclosure of Accounting Policies

Disclosure of Accounting Policies

108. An entity shall disclose in the summary of significant accounting policies:

(a) the measurement basis (or bases) used in preparing the financial report; and

(b) the other accounting policies used that are relevant to an understanding of the financial report.

109. It is important for users to be informed of the measurement basis or bases used in the financial report (for example, historical cost, current cost, net realisable value, fair value or recoverable amount) because the basis on which the financial report is prepared significantly affects their analysis. When more than one measurement basis is used in the financial report, for example when particular classes of assets are revalued, it is sufficient to provide an indication of the categories of assets and liabilities to which each measurement basis is applied.

110. In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users when those policies are selected from alternatives allowed in Australian Accounting Standards. An example is disclosure of whether a venturer recognises its interest in a jointly controlled entity using proportionate consolidation or the equity method (see AASB 131 Interests in Joint Ventures). Some Australian Accounting Standards specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, AASB 116 requires disclosure of the measurement bases used for classes of property, plant and equipment. AASB 123 Borrowing Costs requires disclosure of whether borrowing costs are recognised immediately as an expense or capitalised as part of the cost of qualifying assets.

111. Each entity considers the nature of its operations and the policies that the users of its financial report would expect to be disclosed for that type of entity. For example, an entity subject to income taxes would be expected to disclose its accounting policies for income taxes, including those applicable to deferred tax liabilities and assets. When an entity has significant foreign operations or transactions in foreign currencies, disclosure of accounting policies for the recognition of foreign exchange gains and losses would be expected. When business combinations have occurred, the policies used for measuring goodwill and minority interest are disclosed.

112. An accounting policy may be significant because of the nature of the entity’s operations even if amounts for current and prior periods are not material. It is also appropriate to disclose each significant accounting policy that is not specifically required by Australian Accounting Standards, but is selected and applied in accordance with AASB 108.