International Accounting Standards Board Responds to Companies’ Call for Help with Materiality in Financial Statements


LONDON - The International Accounting Standards Board (Board) has issued guidance on how to make materiality judgments. The publication encourages companies to apply judgment instead of using IFRS requirements as a checklist, so that financial statements focus on the information that is useful to investors. The Board is also consulting separately on proposed clarifications to the definition of 'material' information in financial statements.

The concept of materiality is important in the preparation of financial statements, because it helps companies determine which information to include in and exclude from their reports. Companies make materiality judgements not only when deciding what information to disclose and how to present it but also when making decisions about recognition and measurement.

Some companies are unsure about how to make materiality judgements and have therefore used the disclosure requirements in IFRS Standards as a checklist. To encourage behavioral change and provide support to companies making such judgements, the Board has issued IFRS Practice Statement 2 Making Materiality Judgements.

The Practice Statement gathers all the materiality requirements in IFRS Standards and adds practical guidance and examples companies may find helpful in deciding whether information is material. The Practice Statement is not mandatory and neither changes requirements nor introduces new ones.

Commenting on the Practice Statement, Hans Hoogervorst, chairman of the International Accounting Standards Board, said: /