Amendments to IAS 1 on disclosure of accounting policies

Keywords: Mazars, Thailand, IFRS, IASB, IAS 1

07 April 2021

The amendments are intended to help companies to identify the disclosures they should present on their accounting policies, to ensure the information is useful to users of financial statements.

The amendments are the result of the Board’s research via its March 2017 Discussion Paper entitled Disclosure Initiative – Principles of Disclosure, and the subsequent Exposure Draft on disclosure of accounting policies published in August 2019.

The main change is that entities must henceforth disclose “material accounting policy information” rather than their “significant accounting policies”. The term “material”, unlike “significant”, is clearly defined in IAS 1, following the amendments on the definition of materiality that came into effect on 1 January 2020. As a reminder, “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 amendments published in February 2021 build on this, stating that, “Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements”.

The amendments also include the following clarifications, to help entities to identify the material accounting policy information that should be disclosed in the notes to the financial statements:

• accounting policy information may be material even if the amounts involved are immaterial, if the related transactions, other events or conditions are material;
• not all accounting policy information relating to material transactions, other events or conditions is material;
• accounting policy information is likely to be material if users of the financial statements would need it to understand other material information in the financial statements. IAS 1 gives examples of situations in which information would be deemed to be material because the related transactions, other events or conditions are material, such as the following:
  • an entity has changed its accounting policy during the period, resulting in a material change to the information presented in the financial statements;
  • an entity has chosen an accounting policy from various options permitted by IFRSs;
  • the accounting treatment required for the transactions, other events or conditions is complex and users of the financial statements would not be able to understand them without this information. However, the standard does not give any further details on what is meant by “complex”, so this could require significant use of judgement.

The amendments also state that:

• if the accounting policy information focuses on how an entity has applied the requirements of IFRSs to its own situation, this provides entity-specific information that is more useful to users of financial statements than standardised information, or than information that only duplicates or summarises the requirements of the IFRSs.
• if an entity decides to present immaterial accounting policy information, this must not obscure the material information.

Practice Statement 2 provides examples of how the principles set out in IAS 1 should be applied in practice.

The amendments are mandatory for financial periods commencing on or after 1 January 2023; early application is permitted. The Basis for Conclusions states that in most cases, it will not be necessary to present comparative information.

The EFRAG Endorsement Status Report was updated on 12 February 2021 to reflect the new amendments, but as yet there is no provisional date for endorsement by the EU.