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Disclosure initiative — Materiality

Background

This project arose from the IASB's disclosure framework project.

The IASB formally added a short-term initiative on disclosure to its work programme in December 2012 as part of its response to the Agenda Consultation 2011.  The objective of the initiative was to explore opportunities to see how those applying IFRS can improve and simplify disclosures within existing disclosure requirements.

In implementing this initiative, the IASB undertook a constituent survey on disclosure and held a disclosure forum designed to bring together securities regulators, auditors, investors and preparers.

The IASB subsequently issued Feedback Statement Discussion Forum – Financial Reporting Disclosure on 28 May 2013, which outlined the IASB's intention to consider a number of further initiatives, including a project on materiality, seeking to develop application guidance or educational material on materiality, with input from an advisory group.

Although the concept of materiality is discussed in the Conceptual Framework for Financial Reporting, the IASB does not intend to revisit the concept in its comprehensive project on the conceptual framework.  Instead, this project will look at how materiality is applied in practice and whether more guidance is needed in IAS 1 Presentation of Financial Statements

In particular, the project will consider the following feedback received by the IASB:

  • There is uncertainty about how the concept of materiality should be applied, resulting in a perhaps overly cautious approach to disclosure, preparers being reluctant to 'filter out' information which is not relevant and auditors and regulators being reluctant to accept omissions on face value
  • The drafting of some standards can be read to suggest the specific requirements of those standards overrides the general statement in IAS 1 that an entity need not provide information that is not material.

The IASB subsequently decided that the objective of this project should be to help preparers, auditors and regulators use judgement when applying the concept of materiality in order to make financial reports more meaningful.  The the scope of the project is the application of materiality across the whole of the financial statements, but with a focus on applying the concept of materiality to the notes.

The project will focus on the following topics:

  • the lack of understanding of the "materiality" concept
  • the lack of clarity in applying the concept of materiality, in particular to disclosures in the notes to the financial statements
  • how disclosure requirements are written, i.e. the use of unclear language used to describe disclosure objectives and other disclosure guidance in IFRS.
  • consideration of whether additional guidance could be developed that assists entities to determine significant accounting policies.

 

Current status of the project

This project has been completed. The IASB issued IFRS Practice Statement Making Materiality Judgements on 14 September 2017 and Definition of Material (Amendments to IAS 1 and IAS 8) on 31 October 2018.

 

Project milestones

Date Development Comments
28 May 2013 Feedback Statement Discussion Forum – Financial Reporting Disclosure published Three key actions to be considered by the IASB:
  • Narrow scope amendments to IAS 1
  • A project to develop application guidance or educational material on materiality
  • Revised research project on financial statement presentation
March 2014 Formally added to the IASB's agenda
28 October 2015
ED/2015/8 IFRS Practice Statement - Application of Materiality to Financial Statements published
Comments requested by 26 February 2016
14 September 2017 ED/2017/6 Definition of Material (Proposed amendments to IAS 1 and IAS 8) published Comments requested by 15 January 2018
14 September 2017 IFRS Practice Statement Making Materiality Judgements issued Companies are permitted to apply the guidance in the Practice Statement to financial statements prepared any time after 14 September 2017.
31 October 2018 Definition of Material (Amendments to IAS 1 and IAS 8) issued
Effective for annual reporting periods beginning on or after 1 January 2020

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