What are the reservations for IAS

Changes to IAS 1 and IAS 8 adopted into EU law

On November 29, 2019, the changes to IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Estimates and Errors” were adopted into European law by the EU with Regulation (EC) No. 2019/2104. The changes apply to reporting periods that begin on or after January 1, 2020 and therefore regularly apply to the 2020 financial year. They affect the definition of the term “material”.

On November 29, 2019, the changes to IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Estimates and Errors” were adopted by the EU with Regulation (EC) No. 2019/2104 amending Regulation (EC ) No. 1126/2008 concerning the adoption of certain international accounting standards in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council into European law. Regulation (EC) No. 2019/2104 was published in the Official Journal of the EU on December 10, 2019. It is only with this so-called endorsement that the changed international accounting regulations become valid for IFRS users in the EU.

With the modification of the regulations, the definition of the term “material” is to be sharpened in order to concretize the materiality concept applied within the IFRS for practice. At the same time, the modifications serve to standardize deviating materiality definitions that were contained both in the framework concept and in the standards themselves.

The changed definition of "material" specifies that information is material if it can reasonably be expected that the omission, incorrect presentation or obscuration of this information will influence the decisions of the primary users of the financial statements, which they make on the basis of the financial statements concerned can. In the amended version of the definition of the term, three new elements should be emphasized in particular:

  • Concealment: The deliberate omission or incorrect presentation of information previously mentioned with a view to significant errors is supplemented by the fact of concealment.
  • Expectation in a reasonable way: The materiality of information is no longer determined by whether an information could influence the addressee, but whether such an influence can be reasonably expected.
  • Primary addressees of the financial statements: In addition, the new definition no longer focuses on all of the addressees of the financial statements, but only on the primary addressees of the financial statements.

The obfuscation of information is thus equated with the omission of information. In the opinion of the IASB, concealment can be implemented as follows, for example:

  • Use of vague or unclear language,
  • the information on essential facts can be found in various places in the financial statements,
  • unequal items, transactions or other events are inappropriately aggregated or disaggregated,
  • essential information is obscured by an abundance of insignificant information.

Technically, the new definition of materiality was incorporated into IAS 1 with the additional explanations. The definition previously contained in IAS 8 is replaced by a reference to IAS 1.

The changes come into effect for reporting periods from January 1st, 2020. If the fiscal year is the same as the calendar year, they are therefore relevant for the 2020 fiscal year.