MFRS 108: Disclosing Key Assumptions and Estimation Uncertainty
On 19 December 2025, the Malaysian Accounting Standards Board (MASB) issued a publication titled “Disclosures about Uncertainties in the Financial Statements”.
The publication contains six illustrative examples designed to help companies better understand how to disclose uncertainties in their financial statements. The examples are aligned with guidance issued by the International Accounting Standards Board (IASB) and demonstrate how existing IFRS and MFRS requirements can be applied in practice.
Although many of the examples focus on climate-related uncertainties, the principles are equally relevant to other uncertainties that may affect financial reporting.
Importantly, the examples do not introduce new accounting requirements or amend existing standards. Instead, they provide practical guidance to help entities apply current disclosure requirements more clearly and consistently.
There is no formal effective date. However, entities are encouraged to consider the examples when preparing financial statements for periods ending in December 2025 and thereafter.
The Issue under MFRS 108
The guidance concerns how companies disclose key assumptions and estimation uncertainties used when preparing their financial statements.
In practice, management often needs to make assumptions about the future when estimating asset values or determining accounting outcomes. These assumptions may involve uncertainties relating to:
Regulatory changes;
Market demand;
Commodity prices; and
Environmental policies.
In the illustrative example, the company operates in a capital-intensive industry and is exposed to climate-related transition risks.
When performing impairment testing for a cash-generating unit (CGU), management makes assumptions about future developments, including:
Changes in regulations;
Consumer demand; and
Emission-related costs.
The company concludes that:
The recoverable amount of the CGU exceeds its carrying amount; and
No impairment loss needs to be recognised.
However, the assumptions used in the calculation involve significant uncertainty.
The key question is therefore:
Even if another accounting standard does not expressly require disclosure, should the company disclose assumptions that could significantly affect the value of its assets?
Under paragraph 31A of MFRS 108, an entity must disclose information about assumptions and other major sources of estimation uncertainty when there is a significant risk that they could result in a material adjustment to the carrying amounts of assets or liabilities in the next financial year.
Example: A Company Operating Large Industrial Plants
Assume that a company operates large industrial plants and that the value of its assets depends on assumptions about:
Future environmental regulations;
Future customer demand;
Commodity prices; and
Carbon emission costs.
When calculating the recoverable amount of its CGU, management uses these assumptions to estimate future cash flows.
The impairment test may conclude that no impairment loss is required at the reporting date. However, the assumptions could change significantly in the following year.
The company may therefore need to disclose:
The key assumptions used;
The nature of the related uncertainty;
The carrying amount of the affected assets; and
The sensitivity of the valuation to changes in those assumptions.
These disclosures help users understand the judgements and uncertainties behind the reported figures.
Who May Be Affected?
1. Companies Preparing Financial Statements
Companies must carefully assess whether significant estimation uncertainty exists when preparing their financial statements.
Where such uncertainty exists, they may need to disclose:
Whether the assumptions could change in the near future; and
Whether additional disclosure is necessary to explain the uncertainty.
This may result in more detailed information being included in the notes to the financial statements.
3. Auditors
Auditors are likely to focus on:
Whether management’s assumptions are reasonable and supportable;
Whether significant estimation uncertainties have been disclosed; and
Whether the disclosures provide sufficient transparency to users.
As a result, auditors may apply greater scrutiny to estimates that depend heavily on management judgement.
4. Investors and Other Financial Statement Users
These disclosures help investors understand:
How sensitive asset values are to future changes;
The level of uncertainty underlying financial estimates; and
Potential risks that could affect future financial performance.
When Should Entities Consider the Guidance?
The illustrative examples do not amend existing MFRS requirements and therefore do not have a mandatory effective date.
However:
MASB issued the guidance on 19 December 2025; and
Entities are encouraged to consider these principles when preparing financial statements for periods ending in December 2025 and thereafter.
Companies should implement any necessary additional disclosures within a reasonable period, or “sufficient time”. This would typically mean within several months and generally not more than one year.
Key Lessons for Accountants and Auditors
1. Judgements and Estimation Uncertainty Should Be Transparent
Users need to understand the assumptions management has made about the future and the basis for those assumptions.
2. Disclosure May Still Be Required Even When No Accounting Adjustment Is Made
Even when no impairment loss is recognised, the assumptions supporting that conclusion may still need to be explained.
3. Focus on the Sensitivity of Estimates
If a relatively small change in an assumption could significantly affect asset values, the related uncertainty and sensitivity may require disclosure.
A conclusion that no accounting adjustment is required does not mean that the assumptions behind the conclusion are unimportant.
MFRS 108：披露关键假设与估计不确定性
2025 年 12 月 19 日，**马来西亚会计准则委员会（MASB）**发布了题为 **《财务报表中的不确定性披露》（Disclosures about Uncertainties in the Financial Statements）**的出版物。
