While officially non-authoritative, I expect over time the Practice Statement will have an outsized impact on practice. Case in point-witness the Financial Accounting Standards Board’s recent challenges trying to revise the US GAAP definition of materiality. In the end, we concluded such would be impractical after considering the wide variety of local laws on the subject. We did consider if it should be mandatory.
In the middle: helping the preparers make materiality judgementsįurther developing our views on applying materiality, in 2017 we published our second major deliverable in this project in the form of IFRS Practice Statement 2 Making Materiality Judgements (Practice Statement), a 50-page document providing non-mandatory application guidance. That was never our intention and we clarified that the materiality concept always overrules any ‘at a minimum’ type language. Widespread practice interpreted such wording literally. We observed that IFRS disclosure requirements often begin with phrases such as ‘At a minimum an entity shall disclose…’. We also took our first steps towards addressing how we draft disclosure requirements. The Board clarified that just because a particular item-say investment securities-was material for inclusion on the face of the financial statements, it does not automatically mean every enumerated disclosure on that subject is also material.įurther, we made it clear that the materiality, and hence the need-or lack thereof-for a specific disclosure is assessed in the context of the financial statements taken as a whole. It also included our first foray into addressing disclosure materiality.
Vexing notion definition how to#
These amendments accomplished several things such as providing much needed flexibility for preparers in organising footnotes and how to deal with vexing issues such as aggregation and subtotals. Our first concrete deliverable occurred in late 2014 with amendments to IAS 1 Presentation of Financial Statements. Here goes: In the beginning: unshackling the preparers Embedded practices only change slowly so we knew this would be a multi-step endeavor. The Disclosure Initiative set out to, once and for all, comprehensively address the problems caused by how the concept of materiality is applied in practice. So…what to do?Īs our journey began, it soon became obvious that materiality-how it is defined and how it is applied-was a major contributor to the problem. Both groups agree that whatever is communicated is neither organised nor presented effectively. Preparers define the disclosure problem as ‘too much irrelevant information’ (AKA disclosure overload) whereas investors see it more as ‘not enough relevant information’. From this sprung an integrated suite of related projects under an umbrella title, the ‘Disclosure Initiative’, and by 2016 Hans’ commitment had evolved into our unifying theme for the next five years: Better Communication in Financial Reporting. In response, our chair Hans Hoogervorst committed us to address, and resolve, what is colloquially referred to as ‘the disclosure problem’. ‘Financial statements need to communicate better’… was the essence of a pointed message the International Accounting Standards Board (Board) heard in early 2013. By Gary Kabureck, Member, International Accounting Standards Board
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