Materiality trending for accounting

I welcome todays trend “Back to materiality”, that seems to occur on all levels.

Wrong focus

Through the years I’ve used too much time and energy discussing accounting matters with colleagues, auditors, tax authorities etc which, although they could’ve been difficult, really didn’t matter for the readers understanding of a financial statement or the on going reporting.

Right focus

Interesting in this context is that I can hardly ever recall any such frustrating discussions with the customers of our accounting bureau, the entrepreneurs themselves. They seem to have the materiality in their blood, otherwise they couldn’t have developed successful businesses!

Regional materiality

In June 26, 2013, the European Union published an updated directive on financial and consolidated statements (Directive 2013/34/EU).

In this directive the EU openly declare that materiality should guide accounting, measurement, disclosure and consolidated accounts in financial reporting (item 17).

National materiality

The member states of the EU are obliged to adapt the updated accounting directive.

In January 1, 2016, Sweden’s adaption took effect by an updated Annual Accounts Act (see my post from December 30, 2015: “What Happened Next – Updated Swedish Annual Accounts Act“).

In this updated law materiality is now included among the basic accounting principles (2 chapter 3 a §). This is in my opinion a big step forward, since it doesn’t seem to have been enough that materiality has been implicit for decades.

Global materiality

The puzzle seems to be completed when The International Accounting Standards Board (IASB) published an exposure draft “IFRS Practice Statement: Application of Materiality to Financial Statements” (ED/2015/8) on October 28, 2015.

The exposure draft have been open for comments to February 26, 2016. According to the work plan of IFRS the project direction will then be decided within six months.

Materiality for SME

My special concern is the development of accounting regulations for small and medium sized enterprises (SME), since the focus of accounting development by tradition is on listed and large enterprises.

I hereby highlight the materiality principle when developing accounting regulations for SME, since they by nature have smaller or non-existent resources to apply complicated and detailed regulations.

Developing harmonized accounting regulations for SME is in my opinion highly topical for ASEAN and the ASEAN Economic Community (AEC). Adapting materiality in this process will be facilitated to a large extent by the international development and, hopefully, by the regional example of the EU.

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