IASB Advisers Call for Voluntary Guidance on Materiality

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By David R. Jones

Dec. 7 — Most members of an International Accounting Standards Board panel agreed Dec. 7 that IASB should issue its statement on materiality as guidance.

The Accounting Standards Advisory Forum (ASAF), which operates as a sounding board for national standard setters and regional organizations, responded at a meeting in London to IASB's request for feedback on the board's proposed practice statement on materiality.

Defining Materiality

IASB published the proposed practice statement in October as an exposure draft aimed at helping preparers, auditors and regulators use judgment when applying the concept of materiality to general-purpose financial statements (11 APPR 1027, 11/6/15).

Materiality “acts as a filter through which management sifts information to ensure that financial statements include all the financial information that could influence users' investment decisions,” the board said.

The proposed practice statement is part of IASB's larger disclosure initiative, an amalgam of implementation and research projects to bolster disclosure in financial statements prepared under international financial reporting standards (IFRS).

Using Judgment

The ASAF meeting showed a broad consensus among members that IASB should offer advice on applying materiality rather than requiring entities to adopt set procedures.

Advocating Mandatory Use

Two forum members, however, called on IASB to require use of the practice statement.

In any jurisdiction that uses IFRS, board staffer Hugh Shields responded, “you could choose to make it mandatory.”

Several ASAF members warned that the statement would prove a poor fit in the U.S. because of the differences between U.S. Generally Accepted Accounting Principles and IFRS in considering materiality (11 APPR 923, 10/9/15).

Needing a Framework?

Meeting attendees also disagreed about what shape the final practice statement should take.

The proposed statement “doesn't hurt, but it could be much more useful to preparers and auditors with a guiding framework” to provide a comprehensive structure for its examples and illustrations on applying materiality, a forum member said.

Improving Examples

Several participants urged IASB to include additional or more concrete examples in the practice statement on how to apply the materiality concept, and to make the guidance clearer.

Some want the board to supply illustrations, for instance, on how to apply materiality to financial-statement notes and to cumulative errors in financial reporting.

The content could also be improved because in some examples “the wording seems clunky,” one attendee said.

Trimming Excess Material

Another recommended pruning superfluous material from the practice statement.

“There are too many references to guidance that already exists, and I recommend you provide content that doesn't exist elsewhere,” he said.

Comments on the draft statement are requested by Feb. 26, 2016, and IASB aims to issue the final statement next year.

To contact the reporter on this story: David R. Jones in London at correspondents@bna.com

To contact the editor responsible for this story: Laura Tieger Salisbury at lsalisbury@bna.com

The draft practice statement on materiality is available at http://www.ifrs.org/Current-Projects/IASB-Projects/Disclosure-Initiative/Materiality/Exposure-Draft-October-2015/Documents/ED_IFRSPracticeStatement_OCT2015_WEBSITE.pdf