IFRS Practice Statement 2: Making Materiality Judgements

Project History

On 28 October 2015, the IASB published ED/2015/8 IFRS Practice Statement: Application of Materiality to Financial Statements (the 'ED') with comments requested by 26 February 2016.

The objective of the 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).

The Exposure Draft addresses the following topics: (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.

EFRAG’s Comment Letter

EFRAG issued its draft comment letter on 27 November 2015 and its final comment letter on 8 March 2016.  In the letter, EFRAG supported  the objective to provide non-mandatory application guidance on materiality. EFRAG considered that such guidance could be helpful, in particular in the context of disclosures, in order to provide a common ground for applying judgement in deciding which information is relevant for users and fostering thinking on how materiality is applied.

However, EFRAG considered that the objectives of the guidance should be clarified to state that the practice statement can be useful, beyond preparers, to promote a common understanding of the role and application of materiality by all those involved in the issue of financial statements.

EFRAG also considered that the guidance should be drafted in a more concise and practical way and focus on areas where it is most difficult to exercise judgement on the application of materiality; in particular how materiality is applied in line with the specific roles of the primary financial statements and of the notes.

On 8 March 2016, EFRAG also published a feedback statement summarising the main comments received by EFRAG in response to the draft comment letter and how these comments were considered in finalising the comment letter to the IASB.

Recent developments

At its October and November 2016 meetings, the IASB considered whether, in the light of the comments received on the Exposure Draft, amendments should be made to the final Practice Statement.

At its December meeting, the IASB completed its redeliberations and instructed its staff to begin the balloting process.

The IASB published IFRS Practice Statement 2: Making Materiality Judgements on 14 September 2017.