IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

7.6 Cash Flow Statement Th e cas h flow statemen t se rves as a bas is for evaluating the entity's ability to genera te cash and cash equivalents and the need s to utili ze these cas h flow s. Requirement s of cas h flow stateme nt presentation have been elabo rated in lAS 7, Cash Flow Statements . 7.7 Notes Th e notes shou ld disclose the basis of preparation of financi al sta tements, significant accounti ng policies, information required by IFRS but not disclosed in the statements, and additio nal informa– tion not present in the statements but req uired for further comprehensio n. No tes should be sys tem– atically presented , and eac h item in the statements should be cross-referenced to the relevant note. 7.7.1 Disclosure of Significant Accounting Policies Th e summary of significa nt accounting policies in the notes sho uld inc lude the measurement bases used in the financi al stateme nts and all other accounting policies requ ired for furt her understand– ing . Furthermore, it sho uld include significant j udgments made by management while applyi ng the accounting policies. 7.7.2 Key Sourc es of Estimation Uncertainty Th e notes shou ld co nta in key assumptio ns concerning the future as we ll as other key sources of estima tion that will pos e a sig nifica nt risk of causing a material adj ustment to the ca rry ing amounts of assets and liabil itie s within the next finan cial period. In such a case, the notes should include de tai ls, natur e, and carryi ng amount of those assets and liabilities. The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgments are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed next. A. Impairment of goodwill The Group is required to test, at least annually, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a suitable discount rate in order to calculate the present value of these cash flows. Actual outcomes could vary. B. Impairment of property, plant, and equipment Property, plant, and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is determined based on value in use calculations prepared on the basis of management' s assumptions and estimates. C. Depreciation of property, plant, and equipment Depreciation is provided so as to write down the assets to their residual values over their estimated useful lives as set out above. The selection of these estimated lives requires the exercise of management j udgment. D. Postretirement benefits The determination of the pension cost and defined benefit obligation of the Group's defined benefit pension schemes depends on the selection of certain assumptions, which include the discount rate, inflation rate, salary growth, mortality, and expected return on scheme assets. Differences arising from actual experiences or future changes in assumptions will be reflected in subsequent periods. See note II for further details. 7.7.2.1 Extracts from Published Financial Statements MARKS & SPENCERS GROUP Pic, Annual Report 2006 Notes to Financial Statements 1. Accounting Policies Critical accounting estimates and judgments.