Accounting policies and notes

The primary statements give totals; the notes explain them. Without notes a user can't tell how inventory was valued, which estimates drove the profit figure, or what obligations sit off the balance sheet. Notes are an integral part of the financial statements and are audited with them.

Under IAS 1 (and, from 2027, IFRS 18 and the renamed IAS 8 Basis of Preparation of Financial Statements), the notes normally come in a systematic order: 1. A statement of compliance with IFRS Accounting Standards and the basis of preparation (including going concern). 2. Material accounting policy information — since the IAS 1 amendments Disclosure of Accounting Policies (issued 2021, effective for periods beginning on or after 1 January 2023), entities disclose material policy information, not boilerplate. A policy is worth describing when it involves a choice, is complex, or required significant judgement. 3. Judgements and estimation uncertainty — the judgements with the biggest effect on the amounts, and the assumptions with a significant risk of material adjustment next year (expected credit loss rates, impairment cash flows, useful lives). 4. Supporting information for line items, in the order they appear — PPE movements, the aging of receivables, borrowings and their terms. 5. Other disclosures — contingent liabilities, commitments, events after the reporting period (IAS 10), related parties (IAS 24).

IAS 8 governs changes: - A change in accounting policy (for example, moving from weighted average to FIFO) is made only if a Standard requires it or it gives more reliable and relevant information, and it is applied retrospectively: comparatives are restated as if the new policy had always applied. - A change in accounting estimate (a new useful life, new loss rates, a changed residual value) is applied prospectively — in the current and future periods. A change in depreciation method is also treated as a change in estimate. - A material prior-period error is corrected retrospectively by restating comparatives.

US GAAP follows the same three-way split in ASC 250, and like IFRS treats a change in depreciation method as a change in estimate (described there as one "effected by a change in accounting principle").