The European Financial Reporting Advisory Group (EFRAG) has endorsed the use of the upcoming materiality changes to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Accounting Estimates and Errors
The endorsement advice allows EU and European Economic Area (EEA) companies to use the revised Definition of Material (Amendments to IAS 1 and IAS 8).
The amendments, issued October 2018, clarify the definition of material by including guidance that until now has only featured elsewhere in International Financial Reporting Standards (IFRS) and is part of the International Accounting Standards Board’s (IASB) wider disclosure initiative.
It also aligns the definition used in the IASB’s Conceptual Framework for financial reporting with IFRS and tightens up the wording for the explanations accompanying the definition to make it clearer for users.
IAS 1 is the overarching standard setting out presentation requirements for financial statements, while IAS 8 is used when selecting and applying accounting policies, accounting for changes in estimates and reflecting corrections of prior period errors.
The amendments will be effective for annual periods beginning on or after 1 January 2020, with earlier application permitted.
It is likely that the UK would adopt this amendment in a post -Brexit world based on the current government approach, although this would be dependent on the nature of the UK exit.
Jean-Paul Gauzès, president of the EFRAG board, said: ‘We have concluded that the amendments meet the qualitative characteristics of relevance, reliability, comparability and understandability required to support economic decisions and the assessment of stewardship, raise no issues regarding prudent accounting, and that they are not contrary to the true and fair view principle.’
Report by Sara White