Definition of Material
The Definition of Material (with amendments to IAS 1 and IAS 8) puts the spotlight on:
Applying materiality when preparing financial statements, by:
- Encouriging IFRS reporting specialists to use materiality as a filter
- Redefining the definition and existing guidance aim to help preparers apply judgement
- Making amendments on account policy disclosures, and
- Providing further guidance on disclosures
Materiality as a filter
Making information in financial statements more relevant and less cluttered has been one of the key focus areas for the International Accounting Standards Board (the Board replace by IASB).
Companies make materiality judgements not only when making decisions about recognition and measurement, but also when deciding what information to disclose and how to present it. However, management are often uncertain about how to apply the concept of materiality to disclosure, and find it easier to defer to using the disclosure requirements within the International Financial Reporting Standards as a checklist.
Up to now, the wording of the definition of material in the Conceptual Framework for Financial Reporting differed from the wording used in IAS 1 and IAS 8. The existence of more than one definition of material was potentially confusing, leading to questions over whether the definitions had different meanings or should be applied differently.