What information about estimates is not required to be disclosed?
ASC 275-10 notes the following: Show
The central feature of this Subtopic’s disclosure requirements is selectivity: specified criteria serve to screen the host of risks and uncertainties that affect every entity so that required disclosures are limited to matters significant to a particular entity. The disclosures focus primarily on risks and uncertainties that could significantly affect the amounts reported in the financial statements in the near term or the near-term functioning of the reporting entity. The risks and uncertainties this Subtopic addresses can stem from any of the following:
This Subtopic does not prohibit disclosure of matters it does not require to be disclosed either because they do not meet the specified screening criteria or because they relate to risks and uncertainties that are outside the scope of this Subtopic. In general, “uncertainty” means a state of limited knowledge where it is impossible or impracticable to describe exactly an existing state or a future outcome.1 Uncertainty exists in financial statements where measurements “to a large extent…are based on estimates, judgments, and models rather than exact depictions.”2 As the level of uncertainty increases, challenges may exist for:
For example, seemingly small changes from a management-selected input used to determine fair value could have a material impact on the reported result at any specific date. For example, when a fair value measure is determined primarily based on a discounted cash flow analysis, use of a discount rate that is 100 basis points different could mean the difference between a material goodwill impairment charge, or none at all. This roundtable will bring together investors, preparers, and auditors to provide input about those measurements (and associated disclosures) where the outcome depends on future events that by definition are presently unknown. As the initial step in gathering input on this topic, the roundtable discussion will focus on:
Certain recent accounting standards have increased the extent of measurement uncertainty in financial statements3 and some standards have attempted to increase the transparency into the measurement uncertainty that underlies financial statement items.4 Nonetheless, there continue to be questions about the recognition and measurement of uncertainty; the disclosures necessary to understand the measurement uncertainty; and how uncertainty impacts auditability. The FASB's Conceptual Framework for Financial Reporting states, “if the level of uncertainty … is sufficiently large, that estimate will not be particularly useful.”5 The nature and extent of measurement uncertainty depend on the economic phenomena that the underlying financial statement item is intended to represent. Some question what is the right balance and whether sufficient information is provided to understand the nature and extent of measurement uncertainty. To explore this topic, it may be useful to illustrate some of the various accounting treatments that currently incorporate uncertainty. For example,
Panel DiscussionsThe panel discussions will focus on the following questions. Panelists will be encouraged to specify, where applicable, the topic — financial instruments, goodwill, loss contingencies, etc — that their comments address.
A separate request for comment has been issued for the public to submit feedback on the above questions. Public responses can be provided through the SEC website at www.sec.gov. Additional ResourcesThe Commission staff believes that the following resources may contain additional background information related to the topic of measurement uncertainty.
1 See Douglas Hubbard. “How to Measure Anything: Finding the Value of Intangibles in Business,” John Wiley & Sons, 2007. 2 Statement of Financial Accounting Concepts No. 8, paragraph OB 11. 3 For example, ASC Topic 825-10,Fair Value Option. This standard increased the use of fair value measures that may be determined using unobservable inputs. 4 For example, ASC 820-10, Fair Value Measurement. This standard defined fair value, established a framework for measuring fair value, and expanded disclosures about fair value measurements. 5 Statement of Financial Accounting Concepts No. 8, paragraph QC 16. What are assumptions in estimates?Best Estimate Assumptions means assumptions about future experience that are made using professional judgment, training and experience and are neither deliberately overstated nor deliberately understated.
Which of the following should be disclosed in a summary of significant accounting policies?Option c: Items included in cash and cash equivalents- The composition of cash and cash equivalents, such as marketable securities, T-bills, etc., is required to be disclosed by providing them in the summary of significant accounting policies.
Which of the following would be disclosed in the summary of significant accounting policies disclosure note?The depreciation method is disclosed in the summary of significant accounting policies.
What estimates are included in the accounts?Examples of accounting estimates include:. Allowance for doubtful accounts,. Work-in-progress inventory,. Warranty obligations,. Depreciation method or asset useful life,. Recoverability provision against the carrying amount of investments,. Fair value of goodwill and other intangibles,. Long-term contracts,. |