The International Accounting Standards Board (IASB) has published Exposure Draft: Disclosure of Accounting Policies proposing changes to the IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements.
The objective of the amendments is to make disclosures of accounting policies more relevant to users. The main change is that the requirement to disclose accounting policies will now depend upon them being ‘material’, whereas the existing requirement is that they should be disclosed if they are ‘significant’.
Information about an accounting policy will be material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that primary users of general-purpose financial statements make. Accounting policies that relate to immaterial transactions, other events or conditions are themselves immaterial and need not be disclosed.
In addition, disclosures which simply duplicate the requirements of an IFRS standard should be avoided, even if the accounting policy relates to material transactions. Not all Board members agreed with the proposals. Mr Martin Edelmann’s perception is that users of the financial statements are not always necessarily financial experts and may need the requirements of the standards to be highlighted.
These changes may go some way towards “cutting the clutter” in company accounts by decreasing the number of boilerplate disclosures made. However, there is one way of looking at the proposed changes that says that it would be doing a disservice to certain users to cut back information which had in fact assisted their understanding of the financial statements. In Mr Edelmann’s view: “Accounting policies should be disclosed if management believes the disclosure would assist users of financial statements in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position.” Perhaps management should take the time to understand the needs of their users and design their accounting policy disclosures accordingly.
The consultation is open until 29th November 2019.
If you have any queries or would like advice on your financial statements, please speak to Danielle Stewart.