AASB shines a light on materiality in financial reporting

Posted on November 19, 2023 by Editor

Materiality, a linchpin in financial reporting, has garnered renewed attention from the Australian Accounting Standards Board (AASB). Two recent publications shine a light on the application of materiality by preparers and auditors, revealing a need for more nuanced approaches that align with user expectations.

The first research report, Auditors’ Perspectives: The Impacts of IFRS Practice Statement 2: Making Materiality Judgements explores the influence of IFRS Practice Statement 2 on auditor materiality judgements. The International Accounting Standards Board (IASB) has responded to the call for clarity on materiality by introducing updated frameworks and issuing IFRS Practice Statement 2. This statement lays out a structured four-step process for reporting entities to streamline materiality judgments. However, the impact of these changes on auditor materiality judgments has been an under-explored territory.

The study suggests that auditors familiar with IFRS Practice Statement 2 exhibit improved decision-usefulness in materiality judgments for financial report users, aligning more closely with user-centric processes, but there’s limited evidence of increased consideration of report users in this context.

The second piece of research, in collaboration with the Malaysian Accounting Standards Board (MASB), Materiality Perspectives in Malaysiadives into materiality judgments within the Malaysian financial reporting landscape. This joint effort focused on materiality application, particularly in the context of IFRS, notably IFRS Practice Statement 2.

The study reveals unified understanding among preparers and auditors regarding the integral role of PS2 in financial reporting. The guidance’s efficacy is noted, emphasising professional judgment and reducing information overload. Materiality judgments are linked to disclosure quality, regulatory compliance, and strategic impact on resource allocation – although, for consistent materiality judgements, the continued need for education and monitoring by standard-setters is noted.

This dual exploration by AASB provides actionable insights to enhance materiality for financial professionals and standard-setting bodies globally.

Access them here and here.

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