Which accounting concepts states that omitting or misstating this information could influence users of financial statements?

Exam-standard QuestionsChapter3

Which accounting concept states that omitting or misstating thisinformation could influence users of the financial statements?Q1

Get answer to your question and much more

Which accounting concept states that omitting or misstating thisinformation could influence users of the financial statements?Q1

Get answer to your question and much more

According to the IASB's Conceptual Framework for FinancialReporting, which TWO of the following are part of faithfulrepresentation?1It is neutral2It is relevant3It is presented fairly4It is free from material errorQ2

Get answer to your question and much more

According to the IASB's Conceptual Framework for FinancialReporting, which TWO of the following are part of faithfulrepresentation?1It is neutral2It is relevant3It is presented fairly4It is free from material errorQ2A.1 and 2B.2 and 3C.1 and 4D.3 and 4

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

31 Oct 2018

The International Accounting Standards Board (IASB) has issued 'Definition of Material (Amendments to IAS 1 and IAS 8)' to clarify the definition of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves.

Background

The materiality project arose as part of the IASB's Disclosure initiative started in 2012. The first document published as part of this project was the May 2013 feedback statement Discussion Forum – Financial Reporting Disclosure, which outlined the IASB's intention to consider a number of further initiatives, including a project on materiality, seeking to develop application guidance or educational material on materiality, with input from an advisory group.

A draft practice statement on materiality was published on 28 October 2015, however, subsequently it became clear that some of the proposed guidance needed to be authoritative to have the desired effect, so the project was split up into a part that would see a practice statement published and a part that was intended to result in amendments to IAS 1 and IAS 8. The finalised PracticeStatement Making Materiality Judgements was published in September 2017 at the same time as an exposure draft ED/2017/6 Definition of Material (Proposed amendments to IAS 1 and IAS 8), which is being finalised today.

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' which is quoted below from the final amendments:

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.

Three new aspects of the new definition should especially be noted:

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

During redeliberations, the Board spent a lot of time on discussing what constitutes obscuring information. The amendments stress especially five ways material information can be obscured:

• if the language regarding a material item, transaction or other event is vague or unclear;
• if information regarding a material item, transaction or other event is scattered in different places in the financial statements;
• if dissimilar items, transactions or other events are inappropriately aggregated;
• if similar items, transactions or other events are inappropriately disaggregated; and
• if material information is hidden by immaterial information to the extent that it becomes unclear what information is material.

The new definition of material and the accompanying explanatory paragraphs are contained in IAS 1 Presentation of Financial Statements. The defintion of material in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors has been replaced with a reference to IAS 1.

Effective date

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

Additional information

Please click for:

• IASB press release (link to IASB website)
• IFRS in Focus — IASB amends the definition of material
• Our IAS Plus project page on Disclosure initiative — Materiality
• Our IAS Plus project page on Disclosure initiative — Overview
• updated EFRAG status report

Which accounting concept states that omitting or misstating the information could influence users of the financial statements?

What is the materiality concept in accounting?

Which accounting concepts that financial statements should be stated in terms of a common financial denominator?

What is the consistency concept?