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IASB amends the definition of materiality

  • IASB document Image

Oct 31, 2018

The IASB has amended IAS 1 and IAS 8 to clarify the definition of “material” and to align the definition used in the Conceptual Framework with that in the standards themselves.

Specifically, the amendments define the term “material” as follows:

In­for­ma­tion is material if omitting, mis­stat­ing or obscuring it could rea­son­ably be expected to influence decisions that the primary users of general purpose financial state­ments make on the basis of those financial state­ments, which provide financial in­for­ma­tion about a specific reporting entity.

Notable aspects of the new de­f­i­n­i­tion include:

  • Obscuring — The previous de­f­i­n­i­tion only focused on omitting or mis­stat­ing in­for­ma­tion; however, the Board concluded that obscuring material in­for­ma­tion with in­for­ma­tion that can be omitted can have a similar effect. Although the term “obscuring” is new to this de­f­i­n­i­tion, it was already included in IAS 1 (paragraph 30A).
  • Could rea­son­ably be expected to influence The previous de­f­i­n­i­tion referred to “could influence,” which the Board believed might result in too much in­for­ma­tion because almost anything could influence a user’s decisions even if the pos­si­bil­ity is remote.
  • Primary users The previous de­f­i­n­i­tion referred only to “users,” which the Board feared might be too broad.

The amend­ments are effective for annual reporting periods beginning on or after January 1, 2020. Earlier ap­pli­ca­tion is permitted.

For more information, see press release on the IASB's Web site. Also see Deloitte's IAS Plus Web site for overview and materiality project pages related to the IASB's disclosure initiative.

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