Update to definition of ‘material’ in IFRS standards

The International Accounting Standards Board (IASB) has made amendments to the definition of material, the accounting concept which helps companies reporting under IFRS decide whether particular information should be included in their financial statements.

The updated definition amends IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Amendments have also been made to other IFRS standards and publications to ensure that the definition of material is consistent.

Old definition 

“Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements.”
(IAS 1 Presentation of Financial Statements)

New definition

“Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”
(IAS 1 Presentation of Financial Statements)

• The amendment to the wording is intended to address the potentially low threshold of ‘could… influence the economic decisions that users make’ in the previous definition.
• The amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors bring the definition of material in line with the definition provided in IAS 1 Presentation of Financial Statements.

Further explanation of new definition

• An entity must assess whether information (either individually or in combination with other information) is material in the context of its financial statements taken as a whole.
• Information is obscured if it is communicated in a way that would have a similar effect to omitting or misstating that information eg vague or unclear language; unhelpful positioning of the information including inappropriate aggregation or disaggregation; too much immaterial information.
• The primary users of general purpose financial statements are existing and potential investors, lenders and other creditors many of whom cannot require entities to provide information directly to them. Primary users have a reasonable knowledge of the business and economic activities and review and analyse the information diligently. 

The changes are effective from 1 January 2020, but early adoption is permitted.

If you require any further information on applying the new definition of material or any other aspects of international financial reporting standards, please contact Paul Merris.