Disclosure initiative — Accounting policies

Date recorded:

Approach to project redeliberations (Agenda Paper 20A)


In August 2019, the Board published the Exposure Draft (ED) Disclosure of Accounting Policies, which proposed amendments to IAS 1 and IFRS Practice Statement 2. The staff presented a summary of the comment letter feedback to the Board at its February 2020 meeting.

The objective of Agenda Papers 20A–D was to present the staff analysis and recommendations to the Board about the next steps on the project. In light of the strong support for the project from respondents, the staff think that the Board can finalise the amendments.

Staff recommendation

The staff recommended that no changes are made to the proposal to require entities to disclose ‘material’ accounting policies instead of ‘significant’ accounting policies.

The staff recommended that the proposed changes to IAS 1 should not be delayed to align with any changes arising from the ED General Presentation and Disclosures, which is currently out for comment. However, they will consider whether to align the effective date of this amendment with the amendments to IAS 8 under the Accounting Policies and Accounting Estimates project.

Board Discussion

It was confirmed by the staff that the intention to align effective dates with the IAS 8 project includes looking to align publication dates of the amendments. No further discussion was held on this topic.

Characteristics of primary users (Agenda Paper 20B)

In this paper staff considered three proposals based on the feedback received in relation to the ED. These proposals include:

  • a) Developing guidance about the characteristics of primary users—The staff have not recommended doing this, given that there is guidance on primary users in the Conceptual Framework and it is outside the scope of the project.
  • b) Developing a disclosure objective for accounting policy disclosures—Some respondents suggested an additional disclosure objective based on the enhancing qualitative characteristic ‘understandability’. The staff have not recommended doing this as there is sufficient reference to understandability already included within proposed paragraphs 117B and 117C of IAS 1.
  • c) Adding an example of a circumstance to proposed paragraph 117B of IAS 1—see staff recommendation below.

Staff recommendation

Staff recommend that the Board add a circumstance to proposed paragraph 117B of IAS 1 which would clarify that, when the accounting required by an IFRS Standard is complex or may not be generally understood by users of financial statements, material accounting policy information could include standardised descriptions or information that duplicates the requirements of IFRS Standards.

Board Discussion

Some Board members raised concerns that the proposals would mean that policies that are considered helpful to users, but repeat standard IFRS wording, would not be allowed to be included within accounting policies. One Board member gave the example of IFRS 17, a complex Standard, where, according to the examples, wording from the Standard would only be considered material in the first year of implementation, however, given that it is complex would also be useful to users in subsequent years.

Some Board members noted that immaterial or voluntary disclosures are not prohibited from inclusion in financial statements so these useful disclosures could be included if relevant. However, this was countered with the fact that the new definition of materiality includes the concept of ‘obscuring’ information.

Some Board members pointed to the concepts around ‘obscuring’ in the Materiality Practice Statement which meant that the organisation of information, for example including material accounting policies first, may be a way to avoid obscuring material information in this instance. This is in line with the suggestion in the paper proposed by the Chartered Financial Analyst (CFA) Institute.

Given the nuanced views of a number of Board members it was suggested that a decision should not be made in this area until the staff presented the Board with a new draft of the wording that took in to account the concerns raised.

Board Decision

8 Board members voted in favour of the concept of only allowing materiality, rather than including a concept of ‘usefulness’, in relation to standard IFRS wording in accounting policies.

Examples of circumstances in which an entity is likely to consider information about an accounting policy material (Agenda Paper 20C)

In this paper staff have outlined that the majority of respondents to the ED expressed a view that the list of circumstances in which accounting policy information is likely to be considered material is useful, so this should be retained.

The staff have addressed the three major concerns raised by respondents and made the recommendations below.

Staff recommendation

Staff recommended that the Board:

  • a) does not add those circumstances described in IAS 8:28-31 to proposed paragraph 117B of IAS 1.
  • b) combines the guidance about entity-specific accounting policy information in proposed paragraph 117B(e) with proposed paragraph 117C of IAS 1.
  • c) amends proposed paragraph 117B of IAS 1 to include a reference to information being material by size, nature, or a combination of both.

Board Discussion

One Board member noted that the additional example in the proposed paragraph 117B(e) of IAS 1 reflects the circumstances in which an accounting policy is material by nature, which is different to the requirements in proposed paragraph 117C of IAS 1 which addresses which disclosures should be made. The Board member asked the staff to consider how to continue to include this concept of ‘material by nature’ in the examples if staff recommendation (b) is approved.

Some Board members expressed concern about how an accounting policy, as opposed to the underlying transaction, could be material by size and whether this was the appropriate wording. Staff clarified that the proposed wording considers the related transaction being material by size and clarified that in drafting it was likely that the word ‘magnitude’ would be used in line with other Standards.

Board Decisions

  • In relation to recommendation (a) the Board voted unanimously in favour of the proposal.
  • In relation to recommendation (b) 12 out of 14 Board members voted in favour of the proposal.
  • In relation to recommendation (c) 12 out of 14 Board members voted in favour of the proposal.

Examples for IFRS Practice Statement 2 Making Materiality Judgements (Agenda Paper 20D)

The purpose of this paper was to outline the concerns of respondents in relation to the proposed examples to be included within IFRS Practice Statement 2. The concerns raised mostly related to specific issues with the two examples (S and T) included within the ED rather than to the idea of including examples which were considered to be useful by respondents.

Based on the concerns staff have made recommendations to improve the proposed examples.

Staff recommendation

Staff did not recommend amending proposed Example S to detail all entity-specific accounting policy information that could be identified as material to an entity’s financial statements and should be disclosed. Instead, they recommended the following changes to Example S:

  • aligning the content of proposed Example S to the changes recommended in Agenda Papers 20B-C;
  • clarifying in the example that the timing of revenue recognition is considered to be a significant judgement; and
  • concluding that information about how the transaction price has been allocated to performance obligations could also be material accounting policy information.

Staff recommended that proposed Example T is redrafted to clarify the example and better justify the conclusion reached by better linking the content of proposed Example T to:

  • the proposed amendments to IAS 1 (including those changes recommended in Agenda Papers 20B-C); and
  • existing guidance in the Conceptual Framework of Financial Reporting, the definition of material (IAS 1:7), and IFRS Practice Statement 2 about an entity’s primary users and how to identify their common information needs.

Staff recommended that the Board does not develop additional examples for IFRS Practice Statement 2.

Board Discussion

Some Board members expressed concern in relation to Example T and not recognising an impairment policy where there is no impairment expense. This may exacerbate the behaviour of not impairing when appropriate and should not be evidence that the policy is not material. The staff clarified that the background information is important for this example and that it shows that some of the policy is material but no duplication of information is required.

Another Board member stated that there should not be a move away from the impairment example as this has already been exposed and it has been understood how some stakeholders may react to it.

Board Decisions

  • In relation to the staff recommendation for Example S the Board voted unanimously in favour of the proposal.
  • In relation to the staff recommendation for Example T 11 of the 14 Board members voted in favour of the proposal.

In relation to the staff recommendation to not develop addition examples the Board voted unanimously in favour of the proposal.

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