IFRS Practice Statement 'Making Materiality Judgements'

History of IFRS Practice Statement Making Materiality Judgements

December 2012 IASB formally adds a short-term initiative on disclosure to its work programme as part of its response to the Agenda Consultation 2011
28 May 2013 Feedback Statement Discussion Forum – Financial Reporting Disclosure published; a project to develop application guidance or educational material on materiality to be considered by the IASB
March 2014 Project on materiality formally added to the IASB's agenda
28 October 2015 ED/2015/8 IFRS Practice Statement - Application of Materiality to Financial Statements published
14 September 2017 IFRS Practice Statement Making Materiality Judgements published by the IASB


Amendments under consideration


Summary of IFRS Practice Statement Making Materiality Judgements


The objective of IFRS Practice Statement Making Materiality Judgements is to assist management in presenting financial information about the entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

The Practice Statement is not an IFRS. Consequently, entities applying IFRSs are not required to comply with the Practice Statement. However, it should be noted that materiality is a pervasive principle in IFRSs.


The Practice Statement applies to the preparation of financial statements in accordance with full IFRS. It is not intended for entities applying the IFRS for SMEs.

General characteristics of materiality

Definition of material

The Practice Statement works with the definition of materiality in the current Conceptual Framework.

Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report. 

Similar definitions are contained in IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.*

*The IASB is currently working on a new definition of materiality (see ED/2017/6 Definition of Material (Proposed amendments to IAS 1 and IAS 8)) and the IASB notes that if any changes are made to the definition of material in IAS 1 and IAS 8 as a result of the proposals in the ED, the Board will make consequential amendments to the Materiality Practice Statement and the forthcoming revised Conceptual Framework.

Pervasiveness of materiality judgements

The Practice Statement notes that the need for materiality judgements is pervasive in the preparation of financial statements and affects recognition, measurement, presentation, and disclosure. Thus an entity is only required to apply recognition and measurement requirements when the effect of applying them is material and need not provide a disclosure specified by an IFRS if the information resulting from that disclosure is not material.


When assessing whether information is material, an entity considers its own specific circumstances and the information needs of the primary users of its financial statements. Materiality judgements are reassessed at each reporting date. 

Primary users and their information needs

Primary users of an entity's financial statements are existing and potential investors, lenders and other creditors. They can be expected to have a reasonable knowledge of business and economic activities and to review and analyse the information included in the financial statements diligently. The objective of financial statements is to provide these primary users with financial information that is useful to them in making decisions about providing resources to the entity. Therefore, an entity also needs to consider what type of decisions these users have to make. However, general purpose financial statements are not intended to address specialised information needs, they focus on common information needs.

Impact of publicly available information

Financial statements are required to be comprehensive documents and an entity assesses whether information is material to its financial statements, regardless of whether some of the information may be also available from other sources.

Four-step process

The Practice Statement notes that an entity may find it helpful to follow a systematic process in making materiality judgements and offers an example of such a process.

Step 1

The entity identifies information that has the potential to be material. In doing so it considers the IFRS requirements applicable to its transactions, other events and conditions and its primary users’ common information needs.

Step 2

The entity then assesses whether the information identified in Step 1 is material. In making this assessment, the entity needs to consider quantitative (size) and qualitative (nature) factors. The Practice Statement notes that the presence of a qualitative factor lowers the thresholds for the quantitative assessment, i.e. the more significant the qualitative factors, the lower those quantitative thresholds will be. This could, in fact, result in a quantitative threshold of zero if an item of information could reasonably be expected to influence primary users’ decisions regardless of its size.

Step 3

In a next step, the entity organises the information within the draft financial statements in a manner that supports clear and concise communication. The Practice Statement notes the following helpful points:

  • emphasise material matters;
  • tailor information to the entity’s own circumstances;
  • describe the entity’s transactions, other events and conditions as simply and directly as possible;
  • highlight relationships between different pieces of information;
  • provide information in a format that is appropriate for its type;
  • provide information in a way that maximises, to the extent possible, comparability;
  • avoid or minimise duplication of information; and
  • ensure material information is not obscured by immaterial information.

Step 4

In the most important step, the entity then steps back and assesses the information provided in the draft financial statements as a whole. It needs to consider whether the information is material both individually and in combination with other information. This final assessment may lead to adding additional information or removing information that is now considered immaterial, aggregating, disaggregating or reorganising information or even to begin the process again from Step 2.

Guidance on materiality judgements in specific circumstances

The Practice Statement also offers some guidance on materiality judgements in specific circumstances. These are prior-period information (including prior-period information not previously provided and summarising prior-period information), errors (including cumulative errors), information about covenants, and materiality judgements for interim reporting (including interim reporting estimates).

Application date

The Practice Statement does not have an effective date, it can be applied with immediate effect.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.