Comment letter feedback — Exposure draft: Disclosure of Accounting Policies (Agenda Paper 20)

The ED proposed amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements. The proposed amendments are intended to make disclosures more useful by requiring disclosure of ‘material’ rather than ‘significant’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policies.

Almost all respondents supported the proposal to include ‘material’ rather than ‘significant’ accounting policies. Furthermore, they supported the idea that accounting policies relating to material transactions, other events or conditions are not necessarily material themselves. Respondents were largely in favour of the inclusion of examples to the standard and practice statement. However, despite their support of the above, respondents suggested some amendments to the wording of the proposals and examples and some terminology clarifications.

Concerns were raised regarding the reliance of the proposals on users’ understanding of IFRS – some respondents stated that their experience shows that primary users are not necessarily accounting experts and that the proposals may affect the understandability of the financial statements for such users.

The Board were not be asked for any decisions at the meeting but their thoughts on the feedback was sought to aid future staff activities.

Discussion

The discussion centered on prohibiting immaterial disclosures, the concern raised around the level of accounting knowledge of users (and how this may affect disclosure relating to accounting policies) and the appropriateness of the examples suggested.

The general view seemed to be that, given jurisdictional-specific requirements, it may be impossible to prohibit the disclosure of immaterial accounting policies. Furthermore, explaining IFRS requirements in these policies, although this may be seen to obscure material aspects of the policies and be seen as ‘boilerplate repetition’ of IFRS, may assist users who are not accounting experts to understand these requirements. Therefore, disclosure of and emphasis on material policies should be promoted but the inclusion of immaterial aspects in the annual report is, to an extent, understandable. However, some Board members thought that alternative methods of disclosing these could be explored.

The proposed examples were considered to be useful, but the specific drafting of certain of these could be revisited to address any concerns raised by respondents.