What is Accounting Estimates?
Accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty, such as expected credit losses, useful lives of fixed assets and provisions. Under IAS 8, changes in accounting estimates are recognized prospectively in the period of change and future periods.
How It Works
- Identify items requiring estimation.
- Use reasonable and supportable information to develop the estimate.
- Reassess at each reporting date.
- If the estimate changes, apply the change prospectively, not retrospectively.
Saudi Context
Saudi companies disclose key accounting estimates (provisions for ZATCA assessments, ECL on receivables, end-of-service benefits) along with the assumptions used.
Example
Changing the useful life of equipment from 10 to 8 years is a change in estimate, applied prospectively to current and future depreciation.