Materiality concept: Changes in definition of “Material” under IFRS : 02-11-2018

The International Accounting Standards Board (IASB) has amended the definition of “material” given under the International Financial Reporting Standards (IFRS). The new definition is clearer, to the point and tries to remove the confusions over identification of an information as material in accordance with the old definition.

IASB is an independent group of experts who are responsible for development and publication of IFRS. The definition of “material” has been amended because some companies experienced difficulties while applying the existing definition to judge which information is material and should be disclosed on the financial statements. As per the existing definition, an information is considered as material, if itsomission or misstatement could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Here, it is not clear whether a company should consider an information as material only from the point of view of primary users or all users of financial statements. Further, it may be possible that non-disclosure of an information in the financial statements of an entity change the decisions of users but there will be no effect if the same information is not disclosed in the financial statements of another entity in the same industry. The existing definition is not clear on this point also, i.e., whether an entity should decide on the basis of only its financial statements or financial statements of other entity or both.

As per the new definition, an information is considered material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements which provide financial information about a specific reporting entity. Now, it is clear that the judgment should be made only from the prospective of primary users and the entity’s own financial statements.

Consequent to the change on the definition of “material”, International Accounting Standards (IAS) 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors are amended.

It is expected that similar changes shall also be carried out in Ind AS 1 and Ind AS 8.

Source : Financial Express

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