Presently, there is a section in financial statements disclosing the principles, rules and procedures that an entity follows in preparing and presenting its financial statements (commonly titled as “Significant Accounting Policies”). These policies help ensure consistency and comparability in financial reporting between different entities and assist users in analysing comparative financial performance and financial position of these entities. It is crucial for financial statement users to carefully review the accounting policies disclosed in the financial statements to understand how the entity has applied accounting principles and to make informed decisions.
In 2024, a major change has taken place whereby “Significant Accounting Policies” will be replaced with ‘Material Accounting Policy Information’ in financial statements. This is in line with the new amendments to MFRS 101 “Disclosure of Accounting Policies” which are effective for annual reporting periods beginning on or after 1 January 2023.
There is a new definition of ‘material’ in the context of applying MFRS. Under the new definition, information is material if, when considered together with other information included in an entity’s financial statements, is reasonably expected to influence decisions that the existing and potential financial statement users make in the context of the financial statements as a whole.
Accounting policy information is expected to be material if, without it, the users of the financial statements would be unable to understand other material information in the financial statements. Hence, entity-specific information about accounting policies would likely be made in the financial statements.
The change was due to an attempt by the MASB to enhance communication in financial reporting and increase financial statements’ usability. Using a consistent definition of materiality would make information in financial statements more relevant and less cluttered. To support the change, MASB has also amended the MFRS Practice Statement 2 “Making Materiality Judgements” to guide on how to apply the materiality concept to the disclosure of accounting policy information.
