Material Accounting Policy Information is here!

Effective for annual periods starting on or after 1 January 2023, AASB 101 Presentation of Financial Statements (AASB 101) has been amended. The primary amendment changes the requirement from disclosing “Significant Accounting Policies” to disclosing ‘Material Accounting Policy Information’ in the notes to the financial statements.  

These changes made by the AASB are designed to enhance the clarity and comparability of general purpose financial statements. Preparers of financial statements must be aware of these changes to ensure compliance with the new definitions and disclosures with the aim to enhance and improve the quality of financial reporting in Australia.

What is ‘material’?

Materiality is broadly defined as information that is such through its “omission, misstatement, or obscuration 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.”

In determining whether information is material, an entity should consider the nature or magnitude of the information, or both, including whether omission of the information would be important to the understanding of the financial statements by users.

The new ‘material accounting policy information requirement therefore aligns with the broader concept of materiality, which focuses on information that could reasonably be expected to influence the decisions of users of financial statements.

What do preparers need to do?

As a preparer of financial statements, it may be tempting to view the aforementioned changes as simply a change in the terminology at ‘Note 2’ and a transitional paragraph in your Basis of Preparation note to the financial statements. However, in reality, the changes to AASB 101 require a holistic approach, which involves the following:

  • Assessing materiality – materiality involves both qualitative and quantitative factors, including the nature and magnitude of the information.
  • Evaluate current disclosures – reviewing your current accounting policy disclosures to identify which policies are considered significant under the old standard and assess their materiality under the new guidelines. For instance, an accounting policy note on GST may not necessarily be considered ‘material’ by nature.
  • Determine material policies – identify which accounting policies are material based on their impact on the financial statements, considering the complexity, subjectivity, and judgement involved in applying these policies.
  • Revise internal processes – update your internal processes and documentation practices to align with the new requirements. This may involve revising checklists, financial statement templates and reporting formats.
  • Communicate with Auditors – engage with your auditors early in the process to discuss the changes and how you are implementing them. This can help in identifying any potential issues and ensuring that your disclosures meet audit requirements for the final sign-off!

The changes to ‘material accounting policy information’ prescribed by AASB 101 represent a significant shift towards more meaningful and user-focused financial reporting. Preparers of financial statements must adapt to these changes by refining their disclosure practices, exercising greater judgement, and enhancing their communication with stakeholders.

Accru offers financial reporting and external audit services for a huge diversity of organisations. If you’d like to know more about how we could assist you with your financial reporting and auditing requirements, please feel free to reach out.

About the Author
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Jordan Muddle
Jordan Muddle is an auditor in the Sydney team. Since joining Accru as a graduate four years ago, Jordan has been supporting diverse clientele including subsidiaries of foreign owned companies, hotels and not-for-profit organisations.