ED/2015/8 Application of Materiality to Financial Statements

16 February 2016

Mr H. Hoogervorst
International Accounting Standards Board 30 Cannon Street
London EC4M 6XH

Dear Mr Hoogervorst


ED/2015/8 ‘Application of Materiality to Financial Statements’

The Group of 100 (G100) is an organization of chief financial officers from Australia’s largest business enterprises with the purpose of advancing Australia’s financial competitiveness. The G100 is pleased to provide comment on this ED.

Q1. Form of the guidance

A Practice Statement is not a Standard. The IASB’s reasoning for issuing guidance on applying the concept of materiality in the financial statements in the form of a non- mandatory Practice Statement is set out in paras BC10-BC15.
a. Do you think that the guidance should be issued as non-mandatory guidance? Why

or why not?
b. Do you think that a Practice Statement is the appropriate form for non-mandatory guidance on applying the concept of materiality? Why or why not? If not, what alternative(s) do you propose and why?

The G100 supports issuing the Practice Statement in this form as stand-alone non-mandatory guidance. Providing guidance on this basis is appropriate as the application of the materiality concept requires the exercise of judgement and it would be counterproductive to mandate such an activity. The PS provides a context in which directors and preparers can make decisions about disclosures.

Q2. Illustrative examples

Do you find the examples helpful in the [draft] Practice Statement? Do you think any additional practical examples should be included? If so, what scenarios should the examples address? Please be specific as possible and explain why these example(s) would be helpful to entities.

While the examples are helpful for directors and preparers as indicating factors to be considered in exercising their judgement, they cannot replicate the circumstances when making a judgement whether to include or not include information.

Q3. Content of the [draft] Practice Statement

The [draft] Practice Statement proposes guidance in three main areas:

  1. characteristics of materiality;
  2. how to apply the concept of materiality in practice when presenting and disclosing information in the financial statements; and
  3. how to assess whether omissions and misstatements of information are material to the financial statements.

It also contains a short section on applying materiality when applying recognition and measurement requirements.

Please comment on the following and provide any suggestions you have for improving the [draft] Practice Statement:

  1. Do you think that any additional content should be included in the Practice

    Statement? If so, what additional content should be included and why?

  2. Do you think the guidance will be understandable by, and helpful to, preparers of financial statements who have a reasonable level of business/accounting knowledge

    and IFRS? If not, which paras/sections are unclear or unhelpful and why?

  3. Are there are paras/sections with which you do not agree? If so, which

    paras/sections are they and why?

  4. Do you think any paras/sections are unnecessary? If so, which paras/sections are

    they and why?

  5. Do you think any aspects of the guidance will conflict with any legal requirements related to materiality within your jurisdiction, or a jurisdiction in which you file financial statements?
  1. The G100 suggests that the content should also recognise that materiality judgements are pervasive in preparing financial and other reports and include reference to the MD & A and the application of materiality in the context of integrated reporting. This gives rise to the importance of the qualitative aspects of materiality and how materiality is applied in these circumstances. In addition, the further dimension beyond whether or not to disclose information is where materiality judgements must also be made about how information is presented and its location is explained clearly in the guidance.
  2. The G100 believes that the guidance, as drafted, will be helpful to directors and preparers. However, more guidance on the application of materiality in recognition and measurement decisions would be helpful.
  3. No. While agreeing with the comments regarding immaterial information we suggest that further discussion and examples may be helpful in emphasising this aspect of materiality.
  4. No.
  5. While we do not anticipate any legal issues arising in Australia or conflicts with the Corporations Act 2001 requirements, the ASX Listing Rules apply the concept of materiality and the impact of the proposed guidance on regulatory practice is uncertain.

Q4. Timing

The IASB plans to issue the Practice Statement before the finalisation of its Principles of Disclosure project.
The IASB has tentatively decided to include a discussion on the definition of materiality and whether there is a need to change or clarify that definition within IFRS, in the Discussion Paper for its Principles of Disclosure project (expected to be issued early in 2016). Nevertheless, the IASB thinks that to address the need for guidance on the application of materiality, it is useful to develop the Practice Statement now.

The IASB does not envisage that the discussion about the definition of materiality or any other topics in its Principles of Disclosure project will significantly affect the content of the Practice Statement. Nevertheless, the IASB will consider whether any consequential amendments to the Practice Statement are necessary following the completion of the Principles of Disclosure project. Do you agree with this approach?

The G100 does not anticipate any problems arising if the PS is issued before the disclosure principles are finalised which is likely to take considerable time. If any issues arise they can be addressed at that time. Issuing the guidance as soon as possible will be useful to preparers and others in the meantime.

Q5. Any other comments

Do you have any other comments on the [draft] Practice Statement? As mentioned in Q4, a discussion about the definition of materiality will be included in the Discussion Paper in the Principles of Disclosure project, so the IASB is not asking for comments on the definition at this time.

No further comments.

Yours sincerely

Group of 100 Inc

Zlatko Todorcevski