Disclosure initiative

Date recorded:

Disclosure Initiative: Accounting Policies (Agenda Paper 11A)


In the July 2018 meeting the Board decided to develop guidance and examples for the Materiality Practice Statement which would help preparers in deciding what to disclose as ‘significant’ accounting policies, as required by IAS 1 Presentation of Financial Statements, in their financial statements.

Staff analysis

Staff have considered three areas in the paper:

  • 1. Which accounting policies to disclose?—Staff consider that two questions should be answered by preparers when choosing which policies to disclose:

a. Is the transaction, other event or condition material in size or nature, or both?—this question helps entities determine which accounting policies have the potential to be material by explicitly linking accounting policies for disclosure to material transactions, other events or conditions

b. Is the accounting policy that relates to the material transaction, other event or condition material?—this question helps entities determine if an accounting policy that relates to a material transaction, other event or condition is material to the financial statements and therefore should be disclosed.

  • 2. Guidance on using the four-step materiality process in the Materiality Practice Statement in relation to accounting policies. This guidance would help entities identify policies that have the potential to be material, apply judgement about whether those policies are material and effectively communicate policies by disclosing only the accounting policy information that primary users find useful.
  • 3. Examples demonstrating the application of the four step materiality process where staff have developed examples which address two scenarios. These are when boilerplate or generic information is being disclosed in accounting policies and when accounting policies duplicate recognition and measurement requirements of IFRS Standards.

Staff recommendations

Staff recommended that the Board clarify that not all accounting policies relating to material transactions, other events or conditions are themselves material.

Staff also recommended that the Board:

  • a) Develop guidance to help entities apply effective judgement when deciding whether those accounting policies relating to material transactions, other events or conditions are in fact material
  • b) Develop two or three examples to demonstrate the practical application of the guidance described in (a) and base those examples on paragraphs 46 to 55 of the Materiality Practice Statement (see Appendix A to the agenda paper)
  • c) Locate the guidance and examples described in (a) and (b) above within the ‘specific topics’ section of the Materiality Practice Statement
  • d) Make additional, minor amendments throughout the Materiality Practice Statement to clarify that the four-step materiality process is applicable to accounting policy disclosures

Board Discussions

Recommendation 1

The majority of Board members agreed that it should be clarified that not all accounting policies relating to material transactions, events or conditions are themselves material. Some Board members pointed out that this is important to avoid entities simply repeating the wording of the Standards and to allow entities to have confidence when making materiality decisions in terms of accounting policies.

One Board member noted that it should be clarified that the guidance can also refer to a group of transactions. For instance, individually a revenue transaction is not material but as a group, revenue transactions would be material to most entities and so it should be considered whether the accounting policy for this group of transactions should be disclosed.

Another Board member stated that it could matter that the current phrasing is positive. They expressed a preference for phrasing the clarification in a way that would make it clear that an accounting policy is not automatically material even if the transaction is as the current phrasing appears to say that every policy must be assessed each year. The Board member also proposed to emphasise that this clarification relates to disclosure of accounting policies and any other disclosures relevant to the balance should be considered separately.  

A dissenting Board member expressed concern that the judgement would be too challenging for preparers to apply given the high hurdle of the new materiality definition.

Recommendation 2

Most Board members agreed with the approach put forward by staff. The Vice-Chair raised an issue around the wording used in examples, namely use of the word ‘useful’ to express that accounting policy disclosures should be included in financial statements as this appears to be a different test to ‘material’. Additionally, there was concern expressed that the examples may be too subtle and it should be made clearer when a policy may or may not be included.

Some Board members agreed with the issue raised by the Vice-Chair and expanded on whether materiality was the right judgement to be made in relation to accounting policies given that in isolation they are unlikely to influence the decisions of a primary user. Some discussion was held on whether it may be more useful for preparers to consider accounting policies in the context of completeness and understandability rather than materiality.

One Board member questioned how the approach in the flow diagram included within the paper is different to the three categories originally used in the Discussion Paper which were criticised for being confusing and overly prescriptive. Staff explained that the Discussion Paper suggested including the categorisation within IAS 1 which stakeholders were concerned would be too prescriptive, however, the content has been retained in guidance, instead of within the Standards, to be used as a tool for preparers. In this way it will not be overly prescriptive.

Another Board member expressed concern that there were overlaps in the guidance in relation to entity-specific requirements. Staff clarified that one element was to consider whether a specific policy would be required for a particular entity and that the second element was to remind preparers that entity-specific information in that policy is most useful to users.

Board Decisions

13 members of the Board approved the first recommendation.

12 members of the Board approved the recommendation that staff should continue to develop guidance and examples, taking into account the comments noted in the meeting.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.