EFRAG consults on material amendments to IAS 1 and 8

The European Financial Reporting Advisory Group (EFRAG) has issued an invitation to comment on the proposed definition of material in amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

The original standards explain that information is material when it could influence the decision of users. The amendment replaces the term ‘could influence’ with ‘could reasonably be expected to influence', as the original could be seen to be encouraging entities to disclose immaterial information in their financial statements.

The definition of material was also seen to be lacking in explaining why it is unhelpful to include immaterial information. To prevent this, the concept of ‘obscuring information’ has been added to the requirements against omitting and misstating information, as immaterial concerns could inadvertently obscure information relevant to users.

The characteristics of users has also been expanded on, as it is now explained that they are the ‘primary users of general purpose financial statements’. Previously, the characteristics of users was not explained, ‘which may be interpreted by some as implying that an entity is required to consider all possible users when deciding what information to disclose’.

The full definition of material now states that information is material ‘if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity’.

The proposed amendments were prompted by feedback on the 2014 amendments to IAS 1, which showed that entities often experienced difficulties in making materiality judgments when preparing financial statements.

They are intended to ‘clarify the definition of material by including guidance that until now has featured elsewhere in IFRS Standards’.

EFRAG has concluded that the amendments meet the technical requirements of the European parliament and ‘meet the qualitative characteristics of relevance, reliability, comparability and understandability required to support economic decisions and the assessment of stewardship, and raise no issues regarding prudent accounting’.

The amendments are effective from 1 January 2020 and are required to be applied prospectively, with early application being permitted.

The deadline for comment is 1 February 2019.

EFRAG requests comments on its draft endorsement advice on definition of material is here

Report by James Bunney

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