IASB Finalizes Amendments to IAS 1 and the Materiality Practice Statements
Background
The International Accounting Standards Board (IASB) has issued 'Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)' with amendments that are intended to help preparers in deciding which accounting policies to disclose in their financial statements. The amendments are effective for annual periods beginning on or after 1 January 2023.
The feedback on the Board's DP on Principles of Disclosure suggested that guidance is required to assist entities in determining which accounting policies to disclose. It was noted that the application of materiality is key to deciding which accounting policies to disclose, however, IAS 1 Presentation of Financial Statements does not refer to materiality but states that an entity shall disclose its significant accounting policies' without the Board providing a definition for the term ‘significant’.
Therefore, the Board decided to develop amendments IAS 1 to require entities to disclose their material accounting policies rather than their significant accounting policies. To support this amendment the Board has also developed guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ described in IFRS Practice Statement 2 Making Materiality Judgements to accounting policy disclosures.
Purpose of the amendment
IASB amends IFRS standards to improve accounting policy disclosures and clarify the distinction between accounting policies and accounting estimates.
Changes and amendments
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) amends IAS 1 in the following ways:
- An entity is now required to disclose its material accounting policy information (new) instead of its significant accounting policies (old);
- several paragraphs are added to explain how an entity can identify material accounting policy information and to give examples of when accounting policy information is likely to be material; the amendments clarify that accounting policy information may be material because of its nature, even if the related amounts are immaterial;
- the amendments clarify that accounting policy information is material if users of an entity’s financial statements would need it to understand other material information in the financial statements; and
- the amendments clarify that if an entity discloses immaterial accounting policy information, such information shall not obscure material accounting policy information.
In addition, IFRS Practice Statement 2 has been amended by adding guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ to accounting policy information in order to support the amendments to IAS 1.
Effectivity of IAS 1 Amendment
The amendments are applied prospectively. The amendments to IAS 1 are effective for annual periods beginning on or after 1 January 2023. Earlier application is permitted. Once the entity applies the amendments to IAS 1, it is also permitted to apply the amendments to IFRS Practice Statement 2.
Dissenting Opinions
Board member Françoise Flores dissented from issuing the final amendments. Ms. Flores believes that stating that accounting policy information is material even if it is standardized or duplicates the requirements of IFRSs if the underlying accounting is complex and users of the entity’s financial statements would otherwise not understand material transactions, other events or conditions stretches the concept of materiality beyond its intended scope and undermines the overall aim of the amendments, which is to help an entity reduce the disclosure of immaterial accounting policy information.
For more information, visit IFRS website.
Comments
Post a Comment