ED/ Ind AS1&8/2019/10
Exposure Draft
Definition of Material
Amendments to Ind AS 1 and Ind AS 8
(Last date for Comments: April 6, 2019)
Issued by
Accounting Standards Board
The Institute of Chartered Accountants of India
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Exposure Draft
Definition of Material
(Amendments to Ind AS 1 and Ind AS 8)
Following is the Exposure Draft of the Amendments to Ind AS 1, Presentation
of Indian Accounting Standards, and Ind AS 8, Accounting Policies, Change in
Accounting Estimates and Errors, issued by the Accounting Standards Board of
the Institute of Chartered Accountants of India for comments. The Exposure
Draft proposes refinements to the definition of `material' and aligns this
definition with other Ind AS. These refinements are intended to make the
definition easier to understand and are not intended to alter the concept of
materiality in Ind AS.
The Board invites comments on any aspect of this Exposure Draft. Comments
are most helpful if they contain a clear rationale and, where applicable, provide
suggestions for alternative wording.
Comments can be submitted using one of the following methods, so as to be
received not later than April 6, 2019.
1. Electronically: Click on http://www.icai.org/comments/asb/ to submit
comments online. (Preferred method)
2. Email: Comments can be sent to commentsasb@icai.in
3. Postal: Secretary, Accounting Standards Board, The Institute of
Chartered Accountants of India, ICAI Bhawan, Post Box No.
7100, Indraprastha Marg, New Delhi 110 002.
Further clarifications on any aspect of this Exposure Draft may be sought by e-
mail to asb@icai.in.
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Amendments to Ind AS 1, Presentation of Financial Statements
Paragraph 7 is amended, and paragraph 139T is added. New text is underlined
and deleted text is struck through.
Definitions
7 ...
Material:
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. Materiality
depends on the size and nature of the omission or misstatement
judged in the surrounding circumstances. The size or nature of the
item, or a combination of both, could be the determining factor.
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.
Materiality depends on the nature or magnitude of information, or both.
An entity assesses 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 for primary users of financial statements to omitting or
misstating that information. The following are examples of
circumstances that may result in material information being obscured:
(a) information regarding a material item, transaction or other event is
disclosed in the financial statements but the language used is
vague or unclear;
(b) information regarding a material item, transaction or other event is
scattered throughout the financial statements;
(c) dissimilar items, transactions or other events are inappropriately
aggregated;
(d) similar items, transactions or other events are inappropriately
disaggregated; and
(e) the understandability of the financial statements is reduced as a
result of material information being hidden by immaterial
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information to the extent that a primary user is unable to determine
what information is material.
Assessing whether information an omission or misstatement could
reasonably be expected to influence economic decisions of made by the
primary users of a specific reporting entity's general purpose financial
statements, and so be material, requires an entity to consider
consideration of the characteristics of those users while also considering
the entity's own circumstances. The Framework for the Preparation and
Presentation of Financial Statements issued by the Institute of Chartered
Accountants of India states in paragraph 25 that `users are assumed to
have a reasonable knowledge of business and economic activities and
accounting and a willingness to study the information with reasonable
diligence.' Therefore, the assessment needs to take into account how
users with such attributes could reasonably be expected to be influenced
in making economic decisions.
Many existing and potential investors, lenders and other creditors cannot
require reporting entities to provide information directly to them and
must rely on general purpose financial statements for much of the
financial information they need. Consequently, they are the primary
users to whom general purpose financial statements are directed.
Financial statements are prepared for users who have a reasonable
knowledge of business and economic activities and who review and
analyse the information diligently. At times, even well-informed and
diligent users may need to seek the aid of an adviser to understand
information about complex economic phenomena.
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Effective date
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139T Definition of Material (Amendments to Ind AS 1 and Ind AS 8)
amended paragraph 7 of Ind AS 1 and paragraph 5 of Ind AS 8, and
deleted paragraph 6 of Ind AS 8. An entity shall apply those
amendments prospectively for annual periods beginning on or after 1
April, 2020.
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Amendments to Ind AS 8 Accounting Policies, Changes in
Accounting Estimates and Errors
Paragraph 5 is amended Paragraph 6 is deleted and paragraph 54H is added.
New text is underlined and deleted text is struck through.
Definitions
5 ...
Material 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.
Materiality depends on the size and nature of the omission or
misstatement judged in the surrounding circumstances. The size or
nature of the item, or a combination of both, could be the
determining factor. is defined in paragraph 7 of Ind AS 1 and is
used in this Standard with the same meaning.
...
6 [Refer Appendix 1]Assessing whether an omission or misstatement
could influence economic decisions of users, and so be material,
requires consideration of the characteristics of those users. The
Framework for the Preparation and Presentation of Financial
Statements in accordance with Indian Accounting Standards issued by
the Institute of Chartered Accountants of India states in paragraph 25
that `users are assumed to have a reasonable knowledge of business
and economic activities and accounting and a willingness to study the
information with reasonable diligence.' Therefore, the assessment
needs to take into account how users with such attributes could
reasonably be expected to be influenced in making economic decisions.
...
Effective date
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54H Definition of Material (Amendments to Ind AS 1 and Ind AS 8),
amended paragraph 7 of Ind AS 1 and paragraph 5 of Ind AS 8, and
deleted paragraph 6 of Ind AS 8. An entity shall apply those
amendments prospectively for annual periods beginning on or after 1
April, 2020.
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Amendments in other Ind AS
Note: The following are the amendments to the other Ind AS due to
amendments in Ind AS 1 and Ind AS 8. Framework for the Preparation and
Presentation of Financial Statements in accordance with Indian Accounting
Standards issued by ICAI also needs to be aligned with the proposed
amendments. It may be noted that The Conceptual Framework for Financial
Reporting issued by IASB in March 2018, which is already aligned with IAS 1
and IAS 8 w.r.t materiality, is being considered for formulating corresponding
Conceptual framework under Ind AS. Therefore, at present, no change is
proposed in the Framework for the Preparation and Presentation of Financial
Statements in accordance with Indian Accounting Standards.
(The above Note will not form part of Ind AS).
Amendments to Ind AS 10, Events after the Reporting Period
Paragraph 21 is amended and paragraph 23C is added. New text is underlined and
deleted text is struck through.
Non-adjusting events after the reporting period
21 If non-adjusting events after the reporting period are material, non-
disclosure could reasonably be expected to influence the economic
decisions that the primary users of general purpose financial statements
make on the basis of those thefinancial statements, which provide financial
information about a specific reporting entity. Accordingly, an entity shall
disclose the following for each material category of non-adjusting event
after the reporting period:
(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that such an estimate
cannot be made.
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Effective date
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23C Definition of Material (Amendments to Ind AS 1 and Ind AS 8), amended
paragraph 21. An entity shall apply those amendments when it applies the
amendments to the definition of material in paragraph 7 of Ind AS 1 and
paragraphs 5 and 6 of Ind AS 8.
Amendments to Ind AS 34, Interim Financial Reporting
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Paragraph 24 is amended and paragraph 58 is added. New text is underlined and
deleted text is struck through.
Materiality
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24 Ind AS 1 and Ind AS 8 Accounting Policies, Changes in Accounting Estimates
and Errors define defines an item as material if its omission or misstatement
could influence the economic decisions of users of the financial statements. Ind
AS 1 information and requires separate disclosure of material items, including
(for example) discontinued operations, and Ind AS 8, Accounting Policies,
Changes in Accounting Estimates and Errors requires disclosure of changes in
accounting estimates, errors, and changes in accounting policies. The two
Standards do not contain quantified guidance as to materiality.
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Effective date
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56-58 Refer Appendix 1.
59 Definition of Material (Amendments to Ind AS 1 and Ind AS 8) amended
paragraph 24. An entity shall apply those amendments when it applies the
amendments to the definition of material in paragraph 7 of Ind AS 1 and
paragraphs 5 and 6 of Ind AS 8.
Amendments to Ind AS 37 Provisions, Contingent Liabilities and
Contingent Assets
Paragraph 75 is amended and paragraph 104 is added. New text is underlined and
deleted text is struck through.
Restructuring
...
75 A management or board decision to restructure taken before the end of the
reporting period does not give rise to a constructive obligation at the end of the
reporting period unless the entity has, before the end of the reporting period:
(a) started to implement the restructuring plan; or
(b) announced the main features of the restructuring plan to those affected by it
in a sufficiently specific manner to raise a valid expectation in them that the
entity will carry out the restructuring.
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If an entity starts to implement a restructuring plan, or announces its main
features to those affected, only after the reporting period, disclosure is required
under Ind AS 10 Events after the Reporting Period, if the restructuring is
material and non-disclosure could reasonably be expected to influence the
economic decisions that the primary users of general purpose financial
statements make on the basis of the those financial statements, which provide
financial information about a specific reporting entity.
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Effective date
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104 Definition of Material (Amendments to Ind AS 1 and Ind AS 8), amended
paragraph 75. An entity shall apply those amendments when it applies the
amendments to the definition of material in paragraph 7 of Ind AS 1 and
paragraphs 5 and 6 of Ind AS 8.
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