International Accounting Standards Board responds to companies’ call for help with materiality in financial statements
The International Accounting Standards Board (Board) has today issued guidance on how to make materiality judgements. The publication encourages companies to apply judgement instead of using IFRS requirements as a checklist, so that financial statements focus on the information that is useful to investors. The Board is also consulting separately on proposed clarifications to the definition of 'material' information in financial statements.
The concept of materiality is important in the preparation of financial statements, because it helps companies determine which information to include in and exclude from their reports. Companies make materiality judgements not only when deciding what information to disclose and how to present it but also when making decisions about recognition and measurement.
Some companies are unsure about how to make materiality judgements and have therefore used the disclosure requirements in IFRS Standards as a checklist. To encourage behavioural change and provide support to companies making such judgements, the Board has issued IFRS Practice Statement 2 Making Materiality Judgements.
The Practice Statement gathers all the materiality requirements in IFRS Standards and adds practical guidance and examples companies may find helpful in deciding whether information is material. The Practice Statement is not mandatory and neither changes requirements nor introduces new ones.
Commenting on the Practice Statement, Hans Hoogervorst, chairman of the International Accounting Standards Board, said:
The Practice Statement provides companies with the tools to make their financial statements more useful and concise. For change to happen, however, companies, auditors and regulators will have to work together.
The Practice Statement has been developed following the Board's full due process, which includes extensive outreach and public consultation, and is part of the Board's work under the theme of Better Communication in Financial Reporting.
Definition of 'material' information
The Board has also today published for public comment proposed amendments to the definition of 'material'. The Exposure Draft Definition of Material proposes minor amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to clarify the definition and improve understanding of the current requirements.
The Board is seeking comments on the Exposure Draft by 15 January 2018.