Four-step process

The Practice Statement notes that an entity may find it helpful to follow a systematic process in making materiality judgements and offers an example of such a process.

• Step 1. The entity identifies information that has the potential to be material. In doing so it considers the IFRS requirements applicable to its transactions, other events and conditions and its primary users’ common information needs.
• Step 2. The entity then assesses whether the information identified in Step 1 is material. In making this assessment, the entity needs to consider quantitative (size) and qualitative (nature) factors.
• Step 3. In a next step, the entity organises the information within the draft financial statements in a manner that supports clear and concise communication.
• Step 4. In the most important step, the entity then steps back and assesses the information provided in the draft financial statements as a whole. It needs to consider whether the information is material both individually and in combination with other information. This final assessment may lead to adding additional information or removing information that is now considered immaterial, aggregating, disaggregating or reorganising information or even to begin the process again from Step 2.

Status and effective date

The Practice Statement is not an IFRS. Consequently, entities applying IFRSs are not required to comply with the Practice Statement. However, it should be noted that materiality is a pervasive principle in IFRSs. The Practice Statement does not have an effective date, it can be applied with immediate effect.

Additional information

• IASB press release
• Access to the IASB Practice Statement and video
• Summary of IFRS Practice Statement Making Materiality Judgements (Global IAS Plus)
• IFRS in Focus newsletter summarizing the Practice Statement (Global IAS Plus)