Disclosure initiative

Date recorded:

The Board published the exposure draft IFRS Practice Statement: Application of Materiality to Financial Statements in October 2015 (the ‘ED’). The purpose of this session was to continue discussions on feedback received from the respondents. The following topics will be discussed in this session and the Board will be asked to consider what changes, if any, should be made to the final Practice Statement (‘PS’) in light of the comments received:

  1. Proposed clarifications to the definition of materiality and due process summary — Agenda paper 11A
  2. Prior period information — Agenda paper 11B
  3. Due process steps followed — Agenda paper 11C
  4. Disclosures about restrictions on cash and cash equivalents — Agenda paper 11D

Disclosure Initiative: Proposed clarifications to the definition of materiality and due process summary — Agenda paper 11A


At its October 2016 meeting, the Board observed that the concept of materiality is being discussed in several different projects and that a number of similar, but not identical, versions of the definition of materiality currently exist (see Appendix C). The Board noted that there is a need to group these discussions in a single place to help avoid confusion and to clarify what changes the Board is actually proposing to the materiality definition. The purpose of this session is to ask the Board whether the proposed refinements to the materiality definition should be made in a separate exposure draft (ED) or be included in the Principles of Disclosures Discussion Paper (PoD DP), which is currently being balloted.

Appendices A and B include the proposed amendments to IAS 1 as regards the materiality definition and consequential amendments to other Standards respectively (assuming the ED approach is taken).

Staff analysis

On balance, the Staff believes that proposing the clarifications to the materiality definition in a separate ED has more advantages than incorporating it in the PoD DP. This is because the Board is not proposing substantive changes to the materiality concept nor are the constituents expecting any major changes, as such, these changes could be made more quickly in a separate ED than merging them with the much more discursive topics in the PoD DP (which might also lead to their getting lost in the larger debate). The Staff also assessed the likely effects of the proposed amendments on the Conceptual Framework and the Materiality PS to be insignificant, and that the ED could detail any likely consequential amendments to the final CF and the Materiality PS as a result of the proposed amendments to the definition of materiality.

Staff recommendation

The Staff recommends that the Board propose the clarifications to the definition of materiality separately in an ED with a 120-day comment period, rather than including them in the PoD DP. The Staff further asks the Board for permission to ballot the ED.


The Board unanimously agreed with the Staff’s recommendation with no discussion.

Disclosure Initiative: Materiality – Prior period information — Agenda paper 11B


In its October 2016 meeting, the Board discussed comments received on the application of materiality to prior period information provided in current period financial statements. The Board asked the staff to analyse further the possibility of providing this guidance without distinguishing between the ‘comparative financial statements’ and the ‘corresponding figures’ approaches, neither of which is referred to in the Standards.

Staff analysis

The Staff believes that developing guidance along the lines of the requirement of IAS 1.38 would be compatible with the two approaches listed above. The IAS 1.38 requirement to include prior period information needed to understand the current period financial statements is not conditional on whether that prior period information was included in the prior period financial statements. Consequently, the inclusion of prior period information not previously presented or disclosed would be required if this is necessary to understand the current period financial statements. Nevertheless, that does not necessarily translate into an entity’s having to provide an exact replica of the current year’s disclosure for items that were considered immaterial in the prior period, e.g. disclosing a summary of the prior period information in the current year (in a situation where the current period disclosure could involve, say, a full quantitative maturity analysis) would suffice as long as the entity retains the information necessary to understand the current period financial statements.

Staff recommendation

The Staff recommends that the PS:

  1. Does not describe or acknowledge the existence of two different approaches to prior period information, being the ‘corresponding figures’ and ‘comparative financial statements’ approach.
  2. States that the assessment of whether to provide prior period information should be made on the basis of its relevance to understanding the current period financial statements, as required by IAS 1.
  3. Acknowledges that an entity might choose, or be required (e.g. by local regulatory requirements), to include additional prior period information. In these circumstances, IFRS do not prohibit the disclosure of additional information, but require that such information is prepared in accordance with IFRS and does not obscure information that is material.


The Board approved the Staff’s recommendation.

A few members had issue with the third question as to what an entity should do when disclosing information as required by regulation might obscure information that was material. Other Board members thought this could be resolved by the way in which the entity disclosed and organised such information in the financial statements (e.g. including it at the end, in a separate note, or clearly indicating that this was disclosed per regulatory requirements etc.) such that it would not obscure other material information.

There was not much discussion on the other issues other than the Board asking the Staff to take care when drafting lest the wording used, especially in the examples, be misconstrued as interpreting authoritative Standards in a non-mandatory PS.

Disclosure Initiative: Materiality –Due process steps followed — Agenda paper 11C


The purpose of this session is to ask the Board for permission to ballot the materiality PS.

Appendices A and B summarise the tentative decisions made to date and the due process steps undertaken throughout the Materiality project respectively.

Staff recommendation

The Staff recommends finalising the PS without re-exposure, and setting the prospective application date of the PS as the date on which it is published.


The Board unanimously approved the Staff recommendation with no discussion. One Board member voiced his possible intention to dissent on the topic of immaterial errors.

Disclosure Initiative: Disclosures about restrictions on cash and cash equivalents — Agenda paper 11D


In December 2014, the Board published for comment the proposal to require disclosures of the restrictions that affect the decisions of an entity to use cash and cash equivalent balances (the cash restrictions proposals) as part of the Exposure Draft Disclosure Initiative—Amendments to IAS 7. However, in light of comments received, the finalisation of the cash restrictions proposals was deferred subject to further analysis.

The Staff subsequently revised the drafting for the proposals (see paragraph 23 to the AP) and sought feedback from a group of investors and preparers. While the investors believed that the revised drafting enhanced the current disclosure requirements of IAS 7 (albeit still requesting further information to be disclosed, which the Staff views as mostly relating to contractual, statutory or regulatory restrictions), the preparers disagreed with the revised drafting because they did not see it as much of an improvement from the proposals in the original ED. The preparers also perceived the benefits of the proposals to be insubstantial due to their narrow-scope nature. They were also concerned that the revised requirements would lead to significant preparation costs.

The purpose of this session is to consider the next steps given the feedback received on the revised draft.

Staff analysis

On the basis of the analysis undertaken, the Staff believes that the disclosure requirements in existing Standards already capture many of the restrictions affecting an entity’s cash and cash equivalent balances (i.e. restrictions that are statutory, contractual and regulatory). Consequently, this information, when provided appropriately, should enable investors to assess how much of an entity’s cash and cash equivalent balances are immediately accessible to the group in meeting its financial commitments.

In addition to statutory, contractual or regulatory restrictions, correspondence from investors indicate that they also consider the disclosure of ‘other restrictions’ as per the revised draft to be useful (i.e. restrictions of an economic nature). However, the only example given by investors of such ‘other restrictions’ was the tax implications on repatriation of cash balances. This shows that the additional information that would result from any amendments to IAS 7 would have limited application. In addition, for those specific circumstances, the Staff notes that in many instances, entities will not be able to provide meaningful disclosures until they recognise the tax liability relating to a transfer. This makes the provision of the disclosure proposed in IAS 7.48(a)(ii) of the revised drafting challenging.

Staff recommendation

The Staff recommends not amending IAS 7 for the cash restrictions proposals.


The Board narrowly agreed with the Staff’s recommendation (6 out of 10 votes), subject to raising the issue of non-compliance with existing cash restriction disclosure requirements with auditors and regulators, and including this specific issue in the post-implementation review (PIR) of IFRS 10, 11 and 12.

The Board was split between whether the project should be killed or be kept alive. Those who believed that it should be dropped (even though reluctantly so) believed that amending IAS 7 would not solve the issue (especially in light of the fact that entities were already not complying with the multitude of existing cash restriction disclosure requirements), and that entities might have real difficulty in determining the amount of tax implications on repatriation of cash balances. Those who favoured keeping it believed that the tax implication disclosures would be a small, but very good change in assessing how much cash was actually available to the entity, and that it would be tolerably easy for entities to obtain such information. Some of these Board members were actually more concerned with why the existing disclosure requirements were not being complied with. The Staff noted that it was mostly the amount of the restricted cash that was not being disclosed but they did not enquire into the reason for such non-compliance.

The Board intends to raise this issue in the PIR of IFRS 10, 11 and 12, highlighting, in particular, that IFRS 12.13(a) merely gave examples of significant restrictions that an entity should disclose on its ability to access the assets of the group, and that the disclosures should not be limited to statutory, contractual and regulatory restrictions as listed in that paragraph if disclosing other restrictions would be relevant.

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