1. How does disclosure of judgment help financial users of report in decision making?

Answer: Disclosure of judgment helps financial users of report in making wise decisions through
providing additional information about financial statements. For example: The Segmental
analysis (Provided by the management) of revenue, profit and certain other items, and
information about major customers. So through this information, investors and creditors can
make a wise decision about the company. Because by segmental analysis, it provides additional
information to the user that helps them in understanding the financial statements of a company.

Significant accounting judgements

Disclosure of the most important judgements helps users of financial statements to understand
how accounting policies have been applied and to make comparisons between entities.
Accordingly, such disclosures are most useful when they are not ‘boilerplate’ and explain clearly
the most important judgements made. Examples of significant accounting judgements that might
arise and require disclosure as a result of the impact of coronavirus are:

● going concern considerations, including significant judgement exercised in assessing the

existence of any material uncertainties;
● judgement exercised to determine if an event in the series of coronavirus related events
provides evidence of a condition existing at the reporting date for the entity’s activities, or
their assets and liabilities. This could be critical, for example, when assessing if financial
assets should be impaired at the reporting date as a result of a customer going into
liquidation after the reporting date; and
● judgement exercised to assess whether a possible asset that arises from past events
and whose existence will be confirmed only by the occurrence or non-occurrence of one
or more uncertain future events, not wholly within the control of the entity, should be
disclosed as a ‘contingent asset’ or recognised as an ‘asset’. eg coronavirus related
insurance claim.

IFRS requires the disclosure of judgments, apart from those involving estimations, that have been made in the
process of applying the company’s accounting policies and have the most significant effect on the amounts
recognized in the financial statements. Judgments often relate to a choice between two or more alternatives in
the application of an accounting policy to specific facts and circumstances. Examples of judgments include:

● whether or not a company has control of another company and therefore should consolidate it;
● whether or not substantially all the risks and rewards of ownership of an asset have transferred to
another party such that it has been ‘sold’; and
● whether or not there is sufficient evidence that a company with a history of losses should recognize a
deferred tax asset (the measurement of the deferred tax asset is subject to estimation).
IFRS also requires disclosure about assumptions underlying management estimates that may result in a
material adjustment to the carrying amounts of assets and liabilities within the next financial year. For
example, estimates often include assumptions about the future, including:

● the future selling prices used in estimating the net realizable value of inventory;
● the assumptions on which cash flow forecasts, growth rates, discount rates, etc. are based in the
estimate of an asset impairment; and
● the assumptions made in forecasting future taxable profits to determine the amount of deferred tax
assets it is appropriate to recognize.

Importance of judgments and estimates

The judgments and estimates required to be made by management can affect the financial performance or
position that is reported to investors – often in a material way.

Disclosure of the most important judgments enables users of financial statements to better understand how
significant accounting policies are applied and enables comparisons between companies regarding the basis on
which management makes these judgments. The disclosure of information about the assumptions that have the
most significant effect on those estimates enhances the relevance, reliability and understandability of the
information reported in financial statements.

What is a disclosure in a financial statement?

A disclosure in a financial statement is any information that is not presented in the body of the
financial statements but is instead presented in the footnotes or accompanying schedules.
Disclosures are typically required for items that are considered to be material, which means they
could potentially impact a reasonable person's decision to invest in a company or have a significant
impact on a company's financial statements.

2. What types of judgments are typically disclosed in the financial statements?

Answer: In the financial statements, judgments related to the estimation of uncertain

amounts, valuation of assets or liabilities, recognition of contingent liabilities or assets,
and assessment of going concern are commonly disclosed. These disclose the
subjective decisions made by management that could significantly impact the reported
financial position and results of an entity.