The International Accounting Standards Board (IASB) has issued guidance on how to make materiality judgements to 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 IASB 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.
To encourage behavioural change and provide support to companies making such judgements, the IASB has issued IFRS Practice Statement 2 Making Materiality Judgements, gathering all the materiality requirements in IFRS Standards and adds practical guidance and examples to companies. The Practice Statement is not mandatory and neither changes requirements nor introduces new ones.
The IASB has also issued an Exposure Draft Definition of Material that proposes a 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.
More information can be viewed from the IFRS website.
Source: IFRS, 14 September 2017