The financial statement disclosure for entities directly and/or indirectly affected by natural disasters will vary depending on the magnitude of their losses and the availability of information. In many cases, the financial statement disclosure requirements are addressed based on the nature of the loss (e.g., asset impairments, hedging, decommissioning costs) or the timing of the loss (e.g., events after the reporting period). Because the natural disaster may result in new obligations and uncertainties that an entity may not have previously experienced, the following discussion provides a brief summary of some of the financial statement disclosures addressing impairments, provisions, contingencies, uncertainties and subsequent events.
Impairments Natural disasters – Financial statement disclosure
For each class of assets, an entity should disclose: Natural disasters – Financial statement disclosure
- Impairment losses recognised in profit or loss during the period and the line item(s) of the statement of comprehensive income in which those impairment losses are included
- Reversals of impairment losses recognised in profit or loss during the period and the line item(s) of the statement of comprehensive income in which those impairment losses are reversed
- Impairment losses on revalued assets recognised in other comprehensive income during the period
- Reversals of impairment losses on revalued assets recognised in other comprehensive income during the period
The above information may be presented with other information disclosed for the class of assets, e.g., in a reconciliation of the carrying amount of property, plant and equipment, at the beginning and end of the period. Natural disasters – Financial statement disclosure
There are also specific disclosure requirements for individual assets (including goodwill) or cash-generating units, for which an impairment loss has been recognised or reversed during the period, such as:
- Events and circumstances that led to the recognition or reversal of the impairment loss
- Impairment loss recognised or reversed
- The nature of the asset or a description of the cash generating unit
- The recoverable amount of the asset (or cash-generating unit) and whether this is its fair value less costs of disposal or its value in use. Further disclosures are required if the recoverable amount is fair value less costs of disposal, while if the recoverable amount is value in use, the entity should disclose the discount rate(s) used in the current estimate and previous estimate (if any) of value in use
For each class of provision, an entity provides a reconciliation of the carrying amount of the provision at the beginning and end of the period showing:
- Additional provisions made in the period, including increases to existing provisions
- Amounts used, i.e., incurred and charged against the provision, during the period
- Unused amounts reversed during the period
- The increase during the period in the discounted amount arising from the passage of time and the effect of any change in the discount rate
Comparative information is not required. Natural disasters – Financial statement disclosure
In addition, for each class of provision an entity discloses the following:
- A brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits
- An indication of the uncertainties about the amount or timing of those outflows. When necessary to provide adequate information, an entity discloses the major assumptions made concerning future events (this refers to future developments in technology and legislation and is of particular relevance to environmental liabilities)
- The amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement
Contingent liabilities Natural disasters – Financial statement disclosure
Unless the possibility of any outflow is remote, an entity must disclose by class of contingent liability at the end of the reporting period:
- A brief description of the nature of the contingent liability
- An estimate of its financial effect
- An indication of the uncertainties relating to the amount or timing of any outflow
- The possibility of any reimbursement
Contingent assets Natural disasters – Financial statement disclosure
When an inflow of economic benefits is probable an entity must disclose:
- A brief description of the nature of the contingent asset at the end of the reporting period
- When practicable, an estimate of their financial effect, measured using the principles set out for provisions in IAS 37 Provisions, Contingent Liabilities and Contingent Assets
- When any of the information above is not disclosed because it is not practicable to do so, that fact is stated. IAS 37 emphasises that the disclosure must avoid giving misleading indications of the likelihood of income arising
Reduced disclosures for seriously prejudicial information Natural disasters – Financial statement disclosure
With respect to the above-mentioned disclosures required for provisions, contingent liabilities or contingent assets, an entity may only refrain from providing some or all of the disclosures listed above to the extent that the information can be expected to seriously prejudice the position of the entity in a dispute with other parties. Use of this exception is expected to be extremely rare and is limited to the specific items of information otherwise required to be disclosed. However, the entity is still required to disclose the general nature of the matter, together with the fact that, and the reason why, the information has not been disclosed.
Sources of estimation uncertainty Natural disasters – Financial statement disclosure
Determining the carrying amounts of some assets and liabilities requires estimation of the effects of uncertain future events on those assets and liabilities at the end of the reporting period. IAS 1 requires disclosure of information about the assumptions concerning the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year (with the exception of assets and liabilities measured at fair value based on recently observed market prices).
Entities affected both directly and indirectly by a natural disaster may be required, under IAS 1 Presentation of Financial Statements, to disclose information about those assets and liabilities that are subject to significant estimation uncertainty.
IAS 1 requires that, in respect of the assets and liabilities that are subject to estimation uncertainty, such as non-current assets subject to impairment, the notes include details of their nature and their carrying amounts as at the end of the reporting period. The disclosures are required to be presented in a manner that helps users of financial statements to understand the judgements that management makes about the future and about other key sources of estimation uncertainty.
The nature and extent of the information provided will vary according to the nature of the assumption and other circumstances. Examples of the types of disclosures that an entity would make include:
- The nature of the assumption or other estimation uncertainty
- The sensitivity of carrying amounts to the methods, assumptions and estimates underlying their calculation, including the reasons for the sensitivity
- The expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected
- An explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved
Disclosure of some of these key assumptions is required by other standards. For example, IAS 37 requires disclosure, in certain instances, of major assumptions concerning future events affecting classes of provisions. Another example is IAS 36 that requires disclosure, in certain circumstances, of each key assumption on which management has based its cash flow projections.
When it is impracticable to disclose the extent of the possible effects of an assumption or other source of estimation uncertainty at the end of a reporting period, the entity discloses that it is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions used could require a material adjustment to the carrying amount of the asset or liability affected. However, in all cases the entity discloses the nature and carrying amount of the specific asset or liability affected by the assumption.
Subsequent events Natural disasters – Financial statement disclosure
Entities directly affected by a natural disaster occurring after the end of the reporting period, but before the date of issuing their financial statements will likely need to disclose the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made. Additionally, entities that may be indirectly affected by the event, such as an entity with a concentration of revenue from customers in the affected area, should consider whether subsequent event disclosures are necessary as these could influence the economic decisions that users make on the basis of the financial statements.