Definition of Material – Amendments to IAS 1 and IAS 8

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In October 2018, the International Accounting Standards Board (IASB or the Board) issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (the amendments) to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition.

Effective date

The amendments are effective for annual reporting periods beginning on or after 1 January 2020. Earlier application is permitted.

Changes and reasoning behind the changes

The changes in Definition of Material (Amendments to IAS 1 and IAS 8) all relate to a revised definition of ‘material’ quoted as below:

“Information is material if omitting, misstating or obscuring it could reasonably be expected to influence 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.”

The 3 new important aspects of the new definition are:

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The existing definition only focused on omitting or misstating information, however, the Board concluded that obscuring material information with information that can be omitted can have a similar effect. Although the term obscuring is new in the definition, it was already part of IAS 1 (IAS 1.30A)

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Could reasonably be expected to influence. The existing definition referred to ‘could influence’ for which the Board felt it might be understood as requiring too much information as almost anything ‘could’ influence the decisions of some users even if the possibility is remote.

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Primary users. The existing definition referred only to ‘users’ which again the Board feared might be understood too broadly as requiring to consider all possible users of financial statements when deciding what information to disclose.

Prepared by: Rishi Chawla, Partner

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