Navigating Uncertainty: Key Takeaways from the IASB’s Recent Illustrative Examples

The International Accounting Standards Board (IASB) published illustrative examples, in November 2025, to help entities improve the reporting of uncertainties. This followed the near-final draft issued in July 2025.

This is not a new accounting standard. Rather, the publication demonstrates how existing IFRS Accounting Standards can be applied to better reflect the effects of uncertain events in financial statement disclosures. Although the examples use climate-related scenarios, the underlying principles apply equally to other forms of uncertainty. The initiative also responds to concerns raised by the Financial Reporting Council (FRC) and other stakeholders about the connectivity between disclosures in the front half of the annual report and the financial statements.
 

Action now?

There is no mandatory effective date for implementing these illustrative examples. Entities are allowed adequate time to consider the guidance and integrate any changes in their financial statements, if necessary. Since the near-final draft of the publication was available since July 2025, entities are expected to consider its implication when preparing their annual reports for the year ended 31 December 2025.
 

Practical tips on financial statement disclosures

The following sections provide practical tips on financial statement disclosures based on illustrative examples.
 

Materiality

Materiality is not only dependent on the impact on current numbers in the accounts but also on what users need for a broader understanding

Key takeaway: Many entities focus primarily on the quantitative impact on the financial statements when assessing materiality. They overlook that information is material if its omission or misstatement could reasonably be expected to influence the decisions of primary users. This is particularly important in the context of uncertainties as this information shapes users’ understanding of risks and potential impact on future operations.

Examples: Illustrative Example IV-1 added to IFRS 18 Presentation and Disclosure in Financial Statements demonstrates how entities assess whether additional disclosure is required under IFRS 18.20 (equivalent to the current IAS 1.31) through two contrasting scenarios.

In Scenario 1, a manufacturer with significant climate transition risks determines that these risks do not affect recognition or measurement in the reporting period. However, entity-specific and external qualitative factors such as strategic importance, regulatory context and industry expectations all make the information material to users’ decision-making.

Omitting such disclosure would also be inconsistent with information presented in the front half of the annual report. The entity therefore provides disclosures to explain why the risks have no impact on the financial statements even though no specific IFRS accounting standard requires the disclosure of this information.

In scenario 2, an entity, with limited exposure to relevant uncertainty, concludes that additional disclosure would not influence users’ decisions and is therefore not material.

The scenarios above illustrate that, while entities must assess whether information about an uncertain event is material, this does not imply all entities are required to make a similar ‘negative’ disclosure.
 

Contextual disclosure requirements

Beyond transaction-specific disclosure requirements, broader contextual disclosure requirements are also important

Key takeaway: Disclosure of the assumptions underpinning significant estimates is a key element of the financial statements. A key insight from the examples is that similar disclosure outcomes can arise from different IFRS requirements, depending on the reporting context. Even if specific IFRS accounting standards do not require disclosures, disclosure requirements from IAS 8 or IFRS 18, or the equivalent of current IAS 1, should not be overlooked.

Examples: The illustrative example 10 added to IAS 36 Impairment of Assets focuses on a cash-generating unit (CGU) that includes significant amount of goodwill and is tested for impairment under IAS 36 Impairment of Assets. Although no impairment loss is reported in the reporting period, assumptions about future emission allowance costs are the most sensitive inputs affecting the recoverable amount. As the CGU contains goodwill, IAS 36.134 requires disclosure of key assumptions, how they are determined, and sensitivity information including the headroom between recoverable amount and carrying amount, and the ‘breakeven’ point at which an impairment would arise.

Example 6 added to IAS 8 Basis of Preparation of Financial Statements presents a similar scenario, but the CGU contains no goodwill or intangible assets with indefinite lives. In this case, IAS 36 does not require disclosure. However, IAS 8.31A (equivalent to current IAS 1.125) requires the disclosures of key assumptions and their major source of estimation uncertainty where there is a significant risk of material adjustment to the carrying amounts in the next reporting period.

Additional examples are also included in IFRS 7 Financial Instruments: Disclosures and IAS 37 Provisions, Contingent Liabilities and Contingent Assets to illustrate how to assess whether information about uncertainties is material and what disclosures are required.
 

Disaggregation under IFRS 18

Items within the same line item in the financial statements may have different risks characteristics warranting disaggregation under IFRS 18

Key takeaway: Uncertainties may result in items within the same line item in the financial statements displaying different risk characteristics. IFRS 18 requires disaggregation when it provides material information.

Examples: Illustrative Example IV-2 added to IFRS 18 demonstrates how the presentation and disaggregation principles require entities to assess whether disaggregating items. For example, Property, Plant and Equipment (PPE) with different risk characteristics provides material information so disaggregated information is provided in the relevant note.