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Feedback statement on the ESMA consultation paper on materiality

  • ESMA (European Securities and Markets Authority) (dark gray) Image

14 Feb 2013

The European Securities and Markets Authority (ESMA) has published a feedback statement summarising the responses to its consultation paper 'Considerations of materiality in financial reporting'.

The apparent differing views regarding the practical application of the concept of materiality amongst preparers, auditors, possibly users of the financial reports and, in some instances, accounting enforcers led ESMA to publish the consultation paper in November 2011.

The feedback statement published today provides an overview of the views expressed by respondents to the questions in the consultation paper as well as the feedback from a public roundtable on materiality in financial reporting ESMA hosted in October 2012, and sets out ESMA’s response to the issues arising from the consultation process.

The findings of ESMA's consultation were:

  • A majority of respondents believe that the concept of materiality is generally well understood but that there is diversity in application.
  • Diversity in application was attributed to management judgement, differing perspectives and application challenges.
  • Responses included concerns about the length of disclosures, sometimes obscuring the entity’s financial position and performance.
  • There was agreement that if further guidance was required it should be addressed by the IASB, rather than by ESMA.
  • A number of respondents mentioned the need for greater consistency between accounting and auditing standards.
  • Most respondents highlighted the role of qualitative as well as quantitative aspects in materiality assessments.
  • A lists of items to be considered in materiality judgements was not considered desirable as it could not be exhaustive and is not in line with principle-based standards.
  • A majority of respondents agreed that the impact of all uncorrected misstatements should be considered when evaluating whether aggregate misstatements are material.
  • The majority of respondents were of the opinion that the principles to be applied in assessing materiality in interim and annual financial reports should be the same.

Based on this feedback, ESMA will provide the IASB and the IAASB with the outcome of the consultation and will encourage them to address the aspects of materiality that are seen to be problematic in practice.

Please click for access to the full feedback statement on the ESMA website.

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