Reminder: IAS 1 (Accounting Policies) is now effective

Reminder: IAS 1 (Accounting Policies) is now effective

• 03 January 2024
• Accounting
• South African Accounting Academy

Narrow-scope amendments to IAS 1 were issued by the International Accounting Standards Board (IASB) on 12 February 2021.

A major change is that IAS 1 now requires entities to disclose material accounting policy information, instead of significant accounting policies.

• several paragraphs are added to explain how an entity can identify material accounting policy information and to give examples of when accounting policy information is likely to be material;

• the amendments clarify that accounting policy information may be material because of its nature, even if the related amounts are immaterial;

• the amendments clarify that accounting policy information is material if users of an entity’s financial statements need it to understand other material information in the financial statements; and

• the amendments clarify that if an entity discloses immaterial accounting policy information, such information shall not obscure material accounting policy information.

In addition, IFRS Practice Statement 2 has been amended by adding guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ to accounting policy information to support the amendments to IAS 1.

Par 117 of IAS 1 states that “An entity shall disclose material accounting policy information. 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 based on those financial statements.”

Subsequently, 3 IRBA pronouncements that contain illustrative auditor's reports were updated, e.g. SAAPS 2.

In October 2022, the IAASB issued amendments to the IAS 1 Presentation of Financial Statements that aim to improve the information companies provide about long-term debt with covenants. Refer to our previous alert dated 14 November 2022. The amendments improved the information an entity provides when its right to defer settlement of liability for at least twelve months is subject to compliance with covenants. The amendments also responded to stakeholders’ concerns about the classification of such liability as current or non-current.

These amendments are effective for annual reporting periods beginning on or after 1 January 2024, with early adoption permitted. 

Access the IAASB Practice Alert on the Amendments to IAS 1 and the impact on the ISAs at https://www.ifac.org/_flysystem/azure-private/publications/files/IAASB-Working-Group-Practice-Alert-IAS-1-Amendments.pdf 

Click here to download the IAS 1 standard:

https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2023/issued/part-a/ias-1-presentation-of-financial-statements.pdf?bypass=on#:~:text=The%20amendment%20amended%20IAS%201,Non%2Dcurrent%20Liabilities%20with%20Covenants.

Relevance to Auditors, Independent Reviewers & Accountants:

• Compilers of financial statements should ensure that the relevant financial reporting framework is complied with – in this case, IAS 1.

• As an auditor, you need to consider (in line with the IRBA & JSE Monitoring Report) whether entities display a lack of entity-specific accounting policies.

• Your clients that chose IFRS as their financial reporting framework must guard against “boilerplate” accounting policies.

• Compilers of financial statements should ensure that accounting policies are significant to the user of the financial statements.

Relevance to Your Clients:

• An entity (company or close corporation) shall disclose material accounting policy information.

• Entities that chose IFRS as their financial reporting framework must guard against “boilerplate” accounting policies.

• Accounting policies should be significant to the user of the financial statements.

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