Applying Materiality Judgements

53 Pages Posted: 21 Jan 2024

See all articles by Nives Botica Redmayne

Nives Botica Redmayne

Massey University

Dimu Ehalaiye

Massey University - School of Accountancy

Fawad Ahmad

Massey University

Jude Edeigba

Colorado Mesa University

Fawzi Laswad

Massey University

Date Written: November 10, 2023

Abstract

This is a research report prepared for the New Zealand Accounting Standards Board (NZASB) of the External Reporting Board (XRB) on how the International Accounting Standards Board's (IASB's) requirements and guidance on materiality are applied to improve disclosures in general purpose financial statements.

Key findings:

There is a good understanding of the concept of materiality in New Zealand financial reporting practice.

IASB Documents/IFRS Practice Statement 2 — Making Materiality Judgements is known, but not referred to by New Zealand financial statement preparers (see next).

These preparers prefer using national guidance documents, especially those issued by New Zealand regulators, such as Financial Market Authority (FMA) (which references the IASB Documents/IFRS Practice Statement).

Auditors, as trusted advisors, play a role in reporting entities’ decisions on disclosure materiality.

The research shows an increase in disclosures by New Zealand reporting entities largely due to new standards requiring more detailed disclosures but also related to Covid-19 disclosures, sustainability and other non-financial disclosures.

There is a perceived cost associated with monitoring the level and quality of disclosures in financial statements by preparers.

Divergent views exist between financial statements preparers and regulators on the process of determining material disclosures – preparers are of the opinion, that their business knowledge underpins their appropriate processes, in spite of voluminous requirements in reporting standards; while regulators consider that the processes used by the preparers may at times result in lower quality information disclosures.

There is a high level of compliance with NZ IFRS 15 disclosure requirements in New Zealand, following the adoption of the new revenue standard. Of the observed revenue streams disclosures, type of goods or services and the market or customer type disclosures are predominant.

Keywords: Materiality, IASB, NZASB

JEL Classification: 500, M

Suggested Citation

Botica Redmayne, Nives and Ehalaiye, Dimu and Ahmad, Fawad and Edeigba, Jude and Laswad, Fawzi, Applying Materiality Judgements (November 10, 2023). Available at SSRN: https://ssrn.com/abstract=4697553 or http://dx.doi.org/10.2139/ssrn.4697553

Dimu Ehalaiye

Massey University - School of Accountancy ( email )

Palmerston North
New Zealand

Fawad Ahmad

Massey University ( email )

Private Bag 11 222
Palmerston North, Manawatu 4442
New Zealand

Jude Edeigba

Colorado Mesa University ( email )

1100 North Ave
Grand Junction, CO 81501
United States

Fawzi Laswad

Massey University ( email )

Palmerston North
New Zealand

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