International
Accounting Standards Board (IASB) has issued exposure draft providing guidance
on application of materiality while preparing financial statements as per
International Financial Reporting Standards (IFRS).It will help management of
company to apply the concept of materiality in preparation and presentation of
both annual and interim financial statements of the company. The draft
specifies the factors that should be considered at the time of determination of
materiality of an information, guidance on presentation and disclosure of
material information. It also includes some practical examples to clarify the
guidance.
As
per the Conceptual Framework for Financial Reporting, an information is said to
be material when non-disclosure or omission of the information could influence
the decision about the entity taken by users of financial statements on the
basis of financial statement. As per the exposure draft on application of
concept of materiality, materiality of an information is a matter of judgement.
The management of an enterprise make assessment of an information to check
whether the information is material or not. While making assessment of
materiality management should take into consideration requirements of primary
users of financial statements and types of decisions they are taking, nature
and size of the information etc. The assessment of materiality should be done
on both on individual basis and on collective basis.
The
exposure draft states that apart from assessment of materiality, the management
of an entity should also use its judgement in deciding way of disclosure and
presentation of a material information on the financial statement. Material
information should be disclosed in the financial statement in such a way that
disclosure of the same would not defeat the objective of financial statement.
Any immaterial information should not be disclosed, unless non-disclosure of
the same reduce level of understandability of any material information.
Further, material information can be aggregated or disaggregated at the time of
presentation
The
disclosure requirements specified in different IFRS are minimum disclosure
requirements. Apart from IFRS requirement management can disclose other
information if the information is judged as material. At each reporting date,
management of an entity should review earlier disclosures.
As
pet the draft, if management identified any material misstatements before the
issuance of financial statements, the management should amend the financial
statement.
Stakeholders can submit their comments on IASB website by 26 Feb
2016.
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