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IASB publishes proposed practice statement on materiality

  • IASB document Image

Oct 28, 2015

The IASB has published an exposure draft of a proposed IFRS practice statement (PS), “Application of Materiality to Financial Statements.” The purpose of the PS is to explain and illustrate the concept of materiality and help financial statement preparers apply this concept. Comments on the PS are due by February 26, 2016.

Topics covered in the PS include the the following:

  • Char­ac­ter­is­tics of ma­te­ri­al­ity — The PS states that ma­te­ri­al­ity “is pervasive to the prepa­ra­tion of” general-purpose financial state­ments and needs to be con­sid­ered with respect to the primary financial state­ments as a whole. In addition, the PS notes that in assessing whether in­for­ma­tion is material, an entity should use judgment and should evaluate information both individually and collectively. Further, both qual­i­ta­tive and quan­ti­ta­tive factors should be considered as part of this assessment.
  • Pre­sen­ta­tion and dis­clo­sure in the financial state­ments — The PS stresses that an entity should ensure that the financial statements are comprehensive by (1) assessing what in­for­ma­tion should be presented in the primary financial state­ments, (2) determining what in­for­ma­tion should be disclosed in the notes, and (3) reviewing the financial state­ments as a whole. Management should consider that “users need information to help them assess the prospects for future net cash inflows to an entity” and to evaluate the stewardship of the entity’s resources.
  • Omissions and mis­state­ments — The PS notes that an entity needs to assess the ma­te­ri­al­ity of iden­ti­fied errors or omissions in­di­vid­u­ally and on the basis of the financial state­ments as a whole. Material mis­state­ments or omissions that offset each other still are con­sid­ered material mis­state­ments of the financial state­ments as such. The PS also states that in­ten­tion­ally made mis­state­ments should always be con­sid­ered material.
  • Recog­ni­tion and mea­sure­ment — The PS indicates that although it focuses on materiality in the context of financial statement presentation and disclosures, “similar considerations also apply to the recognition and measurement of the information that is provided in the financial statements.”

Because the proposed PS is not a manda­to­rily ap­plic­a­ble IFRS, it contains neither a proposed effective date nor tran­si­tion guidance. The IASB also notes that the PS may undergo further changes even after being finalized, depending on de­vel­op­ments in the conceptual framework project and the project on prin­ci­ples of dis­clo­sure.

For more information, see the proposed practice statement and press release on the IASB’s Web site.

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