Exposure Draft ED/2015/8 IFRS Practice Statement: Application of Materiality to Financial Statements

The aim of the Exposure Draft (ED) is to provide guidance to assist management in applying the concept of materiality to general purpose financial statements prepared in accordance with International Financial Reporting Standards (IFRS). Information is material if omitting or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity.

The concept of materiality helps the management to decide what information should be included in, excluded from, or aggregated with other information in, the financial statements and how information should be presented to ensure the financial statements are clear and understandable.

The ED provides guidance in the following three main areas in response to feedback to the IASB that the poor application of materiality contributes to too much irrelevant information in financial statements and not enough relevant information:

(a) characteristics of materiality;

(b) how to apply the concept of materiality when making decisions about presenting and disclosing information in the financial statements; and

(c) how to assess whether omissions and misstatements of information are material to the financial statements.

A Practice Statement is not a Standard and its application is not required in order to state compliance with IFRS. However, a jurisdiction could choose to formally adopt a Practice Statement into its national financial reporting requirements.

To download the Exposure Draft, click here.