THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards(1), and in particular Article 3(1) thereof,
Whereas:
(1) By Commission Regulation (EC) No 1126/2008(2) certain international standards and interpretations that were in existence at 15 October 2008 were adopted.
(2) In the framework of its Better Communication in Financial Reporting project which aims at improving the way financial information is communicated to users of the financial statements, the International Accounting Standards Board published on 31 October 2018Definition of Material (Amendments to IAS 1 and IAS 8) to clarify the definition of ‘material’ to make it easier for companies to make materiality judgements and to enhance the relevance of the disclosures in the notes to the financial statements.
(3) Following the consultation with the European Financial Reporting Advisory Group, the Commission concludes that the amendments to International Accounting Standard (IAS) 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors meet the criteria for adoption set out in Article 3(2) of Regulation (EC) No 1606/2002.
(4) Amendments to IAS 1 and IAS 8 imply, by way of consequence, amendments to IAS 10 Events after the Reporting Period, IAS 34 Interim Financial Reporting and IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
(5) Regulation (EC) No 1126/2008 should therefore be amended accordingly.
(6) The measures provided for in this Regulation are in accordance with the opinion of the Accounting Regulatory Committee,
HAS ADOPTED THIS REGULATION:
The Annex to Regulation (EC) No 1126/2008 is amended as follows:
IAS 1 Presentation of Financial Statements is amended as set out in the Annex to this Regulation;
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is amended as set out in the Annex to this Regulation;
IAS 10 Events after the Reporting Period is amended as set out in the Annex to this Regulation;
IAS 34 Interim Financial Reporting is amended as set out in the Annex to this Regulation;
IAS 37 Provisions, Contingent Liabilities and Contingent Assets is amended as set out in the Annex to this Regulation.
Each company shall apply the amendments referred to in Article 1, at the latest, as from the commencement date of its first financial year starting on or after 1 January 2020.
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 29 November 2019.
For the Commission
The President
Jean-Claude Juncker
Paragraph 7 is amended for an entity that has adopted the 2018 Amendments to References to the Conceptual Framework in IFRS Standards, and paragraph 139T is added.
Information is material if omitting, misstating or obscuring it 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.
Materiality depends on the nature or magnitude of information, or both. An entity assesses whether information, either individually or in combination with other information, is material in the context of its financial statements taken as a whole.
Information is obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information. The following are examples of circumstances that may result in material information being obscured:
information regarding a material item, transaction or other event is disclosed in the financial statements but the language used is vague or unclear;
information regarding a material item, transaction or other event is scattered throughout the financial statements;
dissimilar items, transactions or other events are inappropriately aggregated;
similar items, transactions or other events are inappropriately disaggregated; and
the understandability of the financial statements is reduced as a result of material information being hidden by immaterial information to the extent that a primary user is unable to determine what information is material.
Assessing whether information could reasonably be expected to influence decisions made by the primary users of a specific reporting entity’s general purpose financial statements requires an entity to consider the characteristics of those users while also considering the entity’s own circumstances.
Many existing and potential investors, lenders and other creditors cannot require reporting entities to provide information directly to them and must rely on general purpose financial statements for much of the financial information they need. Consequently, they are the primary users to whom general purpose financial statements are directed. Financial statements are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyse the information diligently. At times, even well-informed and diligent users may need to seek the aid of an adviser to understand information about complex economic phenomena.
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Definition of Material (Amendments to IAS 1 and IAS 8), issued in October 2018, amended paragraph 7 of IAS 1 and paragraph 5 of IAS 8, and deleted paragraph 6 of IAS 8. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact.
Paragraph 5 is amended for an entity that has adopted the 2018 Amendments to References to the Conceptual Framework in IFRS Standards. Paragraph 6 is deleted and paragraph 54H is added.
Material is defined in paragraph 7 of IAS 1 and is used in this Standard with the same meaning.
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Definition of Material (Amendments to IAS 1 and IAS 8), issued in October 2018, amended paragraph 7 of IAS 1 and paragraph 5 of IAS 8, and deleted paragraph 6 of IAS 8. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact.
Paragraph 21 is amended and paragraph 23C is added.
the nature of the event; and
an estimate of its financial effect, or a statement that such an estimate cannot be made.
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Definition of Material (Amendments to IAS 1 and IAS 8), issued in October 2018, amended paragraph 21. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact. An entity shall apply those amendments when it applies the amendments to the definition of material in paragraph 7 of IAS 1 and paragraphs 5 and 6 of IAS 8.
Paragraph 24 is amended and paragraph 58 is added.
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IAS 1 defines material information and requires separate disclosure of material items, including (for example) discontinued operations, and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires disclosure of changes in accounting estimates, errors, and changes in accounting policies. The two Standards do not contain quantified guidance as to materiality.
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Definition of Material (Amendments to IAS 1 and IAS 8), issued in October 2018, amended paragraph 24. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact. An entity shall apply those amendments when it applies the amendments to the definition of material in paragraph 7 of IAS 1 and paragraphs 5 and 6 of IAS 8.
Paragraph 75 is amended and paragraph 104 is added.
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A management or board decision to restructure taken before the end of the reporting period does not give rise to a constructive obligation at the end of the reporting period unless the entity has, before the end of the reporting period:
started to implement the restructuring plan; or
announced the main features of the restructuring plan to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the entity will carry out the restructuring.
If an entity starts to implement a restructuring plan, or announces its main features to those affected, only after the reporting period, disclosure is required under IAS 10 Events after the Reporting Period, if the restructuring is material and non-disclosure 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.
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Definition of Material (Amendments to IAS 1 and IAS 8), issued in October 2018, amended paragraph 75. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact. An entity shall apply those amendments when it applies the amendments to the definition of material in paragraph 7 of IAS 1 and paragraphs 5 and 6 of IAS 8
Commission Regulation (EC) No 1126/2008 of 3 November 2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (OJ L 320, 29.11.2008, p. 1).