International Financial Reporting Standards_guide.pdf

52 Chapter 5 Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)
■ the adjustment to the basic and diluted earnings per share in current and prior periods;
and
■ the amount of the adjustment relating to periods before those presented, to the extent
practicable.
5.5.3 In considering an impending change in accounting policy, an entity should disclose;
■ the title of the new standard;
■ the nature of the pending implementation of a new standard;
■ the planned application date; and
■ known or reasonably estimable information relevant to assessing the possible impact of
new standards.
5.5.4 With reference to a change in accounting estimates, an entity should disclose
■ the nature of the change in the estimate; and
■ the amount of the change and its effect on the current and future periods.
If estimating the future effect is impracticable, that fact should be disclosed.
5.5.5 In considering prior-period errors, an entity should disclose
■ the nature of the error;
■ the amount of correction in each prior period presented and the line items affected;
■ the correction to the basic and diluted earnings per share;
■ the amount of correction at the beginning of the earliest period presented; and
■ the correction relating to periods prior to those presented.
5.5.6 Financial statements of subsequent periods need not repeat these disclosures.
5.6 FINANCIAL ANALYSIS AND INTERPRETATION
5.6.1 Analysts find it useful to break down reported earnings into recurring and nonrecurring
income or losses. Recurring income is similar to permanent or sustainable income,
whereas nonrecurring income is considered to be random and unsustainable. Even so-called
nonrecurring events tend to recur from time to time. Therefore, analysts often exclude the
effects of nonrecurring items when performing a short-term analysis of an entity (such as
estimating next year’s earnings). They also might include them on some average (per year)
basis for longer-term analyses.
5.6.2 The analyst should be aware that, when it comes to reporting nonrecurring income,
IFRS does not distinguish between items that are and are not likely to recur. Furthermore,
IFRS does not permit any items to be classified as extraordinary items.
5.6.3 However, IFRS does require the disclosure of all material information that is relevant
to an understanding of an entity’s performance. It is up to the analyst to use this information,
together with information from outside sources and management interviews, to determine
to what extent reported profit or loss reflects sustainable income and expenses and to what
extent it reflects nonrecurring items.