Standardised information and information that duplicates the requirements of IFRS Standards (Agenda Paper 20)

In August 2019 the Board published Exposure Draft ED/2019/6 Disclosure of Accounting Policies, which proposed amendments to IAS 1 and IFRS Practice Statement 2.

At its May 2020 meeting the Board discussed how to address feedback that the Board is assuming that primary users have a greater knowledge of the requirements of IFRS Standards than is the case. At that meeting, the Board asked staff to bring back a paper further analysing whether material accounting policy information can include standardised information or information that duplicates or summarises the requirements of IFRS Standards. This paper presented that staff analysis and includes recommendations for the Board.

Staff analysis

Some respondents to the ED thought that in some situations, such as when the requirements of an IFRS Standard are particularly complex, useful accounting policy information can also include information that contains standardised information or information that duplicates or summarises the requirements of IFRS Standards. These respondents thought in these circumstances such information is so fundamental to users’ understanding of the financial statements that it would be material.

Staff considered moving away from the concept of materiality by providing guidance stating that accounting policy information that is standardised information or information that duplicates or summarises the requirements of IFRS Standards should be disclosed if it helps users better understand an entity’s financial statements, even if that information is not important enough to be assessed as material. However, staff do not recommend this approach as it would be creating an exception to the notion that the definition of material should drive accounting policy disclosure which would be contrary to the proposals in the ED that were largely supported by respondents. Furthermore, such a change would be likely to undermine the improvements to accounting policy disclosures the Board is seeking to achieve (i.e. it would be unlikely to prompt entities to consider removing from the financial statements immaterial accounting policy information that users say they do not find useful.

The staff think that accounting policy information that includes standardised information or information that duplicates or summarises the requirements of IFRS Standards could be assessed as material in the following circumstances:

• If that information is needed for a user to understand other information provided about a material class of transactions, other events or conditions in the financial statements.
• An entity applying IFRS Standards reports in a jurisdiction in which entities also report using local GAAP. For example, in such jurisdictions, users may need information that duplicates or summarises the requirements of IFRS Standards to understand how the IFRS requirements differ from those of the local GAAP.
• If the accounting required by an IFRS Standard is complex and not generally understood by users of financial statements.

Staff still think that adding an example of a circumstance in which an entity may assess as material standardised accounting policy information or accounting policy information that duplicates or summarises the requirements of IFRS Standards has merit.

The staff do not think it was the Board’s intention in developing the proposals to prohibit entities from disclosing immaterial accounting information such as standardised information or information that duplicates or summarises the requirements of IFRS Standards in their accounting policies. Instead, the Board is seeking to help entities provide accounting policy disclosures that are more useful to users of financial statements. Consequently, the staff think guidance should be added to the amendments to IAS 1 explaining that, while an entity is not prohibited from disclosing immaterial accounting policy information, such information must not obscure material accounting policy information.

Staff recommendation

Staff recommended that the Board applies the concept of materiality to all types of accounting policy information, including accounting policy information that is standardised information or information that duplicates or summarises the requirements of IFRS Standards (Recommendation 1).

To clarify how the concept of materiality applies to all types of accounting policy information staff also recommend that the Board adds:

• (a) to proposed IAS 1:117B an example of a circumstance which would clarify that, when the accounting required for a material transaction, other event or condition is complex and would otherwise not be understood by users of financial statements, material accounting policy information could include standardised information or information that duplicates or summarises the requirements of IFRS Standards (Recommendation 2);
• (b) to the proposed amendments to IAS 1 an explanatory paragraph which would:
  • (i) clarify that entities are not prohibited from providing immaterial accounting policy information; and
  • (ii) prompt entities to consider whether they are obscuring material accounting policy information with immaterial accounting policy information (Recommendation 3); and
• (c) to the proposed amendments to IFRS Practice Statement 2 guidance to support those changes to IAS 1 as recommended in (a) and (b) above (Recommendation 4).

Board discussion – Recommendation 1

The Board members had mixed views on this recommendation. Some Board members thought that material information could only be entity-specific information, i.e. information that users have no access to otherwise. That would mean that standardised information directly from the IFRS Standard would not meet the definition of material and would therefore not be required to be disclosed under the amended IAS 1. Those Board members conceded that this information is useful, but it would not meet the definition of ‘material’ and it would especially not be a material error to omit this information.

Other Board members thought that information that helps users to understand material transactions is in itself material, even if copied from IFRS Standards. This information would therefore be required to be disclosed. Many users do not have the extensive knowledge of IFRS Standards that is required to analyse financial statements, especially in the light of IFRS requirements getting more and more complex. Therefore, providing information by duplicating or summarising IFRS Standards serves an educational purpose and no exception should be created for this information.

Board decision – Recommendation 1

On the question whether the concept of materiality should be applied to all types of accounting policy information, including accounting policy information that is a standardised information or information that duplicates or summarises the requirements of IFRS Standards, 11 Board members agreed and 3 disagreed.

On the question whether, at times, accounting policy information that is standardised information or information that duplicates or summarises the requirements of IFRS Standards can be material and should be disclosed, 12 Board members agreed and 2 disagreed.

Board discussion – Recommendation 2

The discussion was around the term ‘user’ and how broad it should be considered. One Board member asked whether it was a typical user with accounting knowledge or just any user. The staff confirmed that they made sure that the wording is consistent with the definition of material in IAS 1, the Materiality Practice Statement and the Conceptual Framework. One Board member said the term was “user of the entity’s financial statements”, i.e. not any user, but a user that specifically wants information about that entity.

Board decision – Recommendation 2

11 of the 14 Board members supported the staff recommendation.

Board discussion – Recommendation 3 & 4

With regard to Recommendation 3, Board members had suggestions for the wording of the proposed new paragraph to IAS 1. One Board member did not like to state explicitly that it is not prohibited to provide information that is not material. She would rather say that if it was provided, it should not obscure material information. That implies that it is not prohibited, but is not a direct statement. Another Board member suggested that it is not necessary to add the paragraph as the requirement was clear from the rest of IAS 1. He suggested to add to the Basis for Conclusions how IAS 1 is applied in this situation. One Board member suggested to segregate material from useful information.

Recommendation 4 was not discussed.

Board discussion – Recommendation 3 & 4

10 of the 14 Board members supported the staff recommendations.