Judgements, uncertainties and errors (AASBS1_09-24)

An entity shall disclose information to enable users of general purpose financial reports to understand the judgements, apart from those involving estimations of amounts (see paragraph 77), that the entity has made in the process of preparing its sustainability-related financial disclosures and that have the most significant effect on the information included in those disclosures.

In the process of preparing sustainability-related financial disclosures, an entity makes various judgements, apart from those involving estimations, that can significantly affect the information reported in the entity’s sustainability-related financial disclosures. For example, an entity makes judgements in:

(a) identifying sustainability-related risks and opportunities that could be reasonably expected to affect the entity’s prospects;

(b) determining which sources of guidance to apply in accordance with paragraphs 54–58;

(c) identifying material information to include in the sustainability-related financial disclosures; and

(d) assessing whether an event or change in circumstances is significant and requires reassessment of the scope of all affected sustainability-related risks and opportunities throughout the entity’s value chain (see paragraph B11).

Other Australian Sustainability Reporting Standards may require disclosure of some of the information that an entity would otherwise be required to disclose in accordance with paragraph 74.

An entity shall disclose information to enable users of general purpose financial reports to understand the most significant uncertainties affecting the amounts reported in its sustainability-related financial disclosures.

An entity shall:

(a) identify the amounts that it has disclosed that are subject to a high level of measurement uncertainty; and

(b) in relation to each amount identified in paragraph 78(a), disclose information about:

(i) the sources of measurement uncertainty—for example, the dependence of the amount on the outcome of a future event, on a measurement technique or on the availability and quality of data from the entity’s value chain; and

(ii) the assumptions, approximations and judgements the entity has made in measuring the amount.

When amounts reported in sustainability-related financial disclosures cannot be measured directly and can only be estimated, measurement uncertainty arises. In some cases, an estimate involves assumptions about possible future events with uncertain outcomes. The use of reasonable estimates is an essential part of preparing sustainability-related financial disclosures and does not undermine the usefulness of the information if the estimates are accurately described and explained. Even a high level of measurement uncertainty would not necessarily prevent such an estimate from providing useful information.

The requirement in paragraph 77 for an entity to disclose information about the uncertainties affecting the amounts reported in sustainability-related financial disclosures relates to the estimates that require the entity’s most difficult, subjective or complex judgements. As the number of variables and assumptions increases, those judgements become more subjective and complex, and the uncertainty affecting the amounts reported in the sustainability-related financial disclosures increases accordingly.

The type and extent of the information an entity might need to disclose vary according to the nature of the amount reported in the sustainability-related financial disclosures—the sources of and the factors contributing to the uncertainty and other circumstances. Examples of the type of information an entity might need to disclose are:

(a) the nature of the assumption or other source of measurement uncertainty;

(b) the sensitivity of the disclosed amount to the methods, assumptions and estimates underlying its calculation, including the reasons for the sensitivity;

(c) the expected resolution of an uncertainty and the range of reasonably possible outcomes for the disclosed amount; and

(d) an explanation of changes made to past assumptions concerning the disclosed amount, if the uncertainty remains unresolved.

Other Australian Sustainability Reporting Standards may require disclosure of some of the information that an entity would otherwise be required to disclose in accordance with paragraphs 77–78.

An entity shall correct material prior period errors by restating the comparative amounts for the prior period(s) disclosed unless it is impracticable to do so.

Prior period errors are omissions from and misstatements in the entity’s sustainability-related financial disclosures for one or more prior periods. Such errors arise from a failure to use, or the misuse of, reliable information that:

(a) was available when the sustainability-related financial disclosures for that period(s) were authorised for issue; and

(b) could reasonably be expected to have been obtained and considered in the preparation of those disclosures.

Corrections of errors are distinguished from changes in estimates. Estimates are approximations that an entity might need to revise as additional information becomes known.

If an entity identifies a material error in its prior period sustainability-related financial disclosures, it shall apply paragraphs B55–B59.