IASB Addresses “Materiality”

On September 14th, the IASB issued IFRS Practice Statement 2, Making Materiality Judgments, on how management should make materiality judgements.

A practice statement sets out nonauthoritative guidance.  Therefore, in stating that their financial statements are prepared in compliance with IFRS, companies are not required to adopt a practice statement.
According to the IASB, Practice Statement 2:

  • Provides an overview of the general characteristics of materiality;
  • Presents a four-step process companies may follow in making materiality judgments when preparing their financial statements; and
  • Provides guidance on how to make materiality judgments in specific circumstances; namely, how to make materiality judgments about prior-period information, errors and covenants, and in the context of interim reporting.

Practice Statement 2 is effective upon issuance, which, as mentioned above, was September 14, 2017.

The IASB also issued an Exposure Draft, Definition of Material, proposing a minor amendment to the IAS 1 and IAS 8 definition of “materiality.”  The proposed amendment is intended to clarify and to improve the understanding of the IFRS materiality guidance.

Comments on the proposed amendment is due to the IASB no later than January 15, 2018.

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