Do you need to keep record of all past decisions on materiality?

The Standards of GRAP do not need to be applied when the effect of applying them to transactions or events is immaterial. Entities can apply “alternative accounting treatments” to immaterial items. These “alternative accounting treatments” are not necessarily based on the Standard of GRAP relevant to that type of transaction or event, but should not be inconsistent with the Conceptual Framework.

Examples of applying “alternative accounting treatments” for immaterial items are as follows:

• Capitalising assets – Assets that qualitatively and quantitatively are immaterial could be expensed in the year of purchase instead of, for example, accounting for them using GRAP 17 on Property, Plant and Equipment.
• Classification of assets – Recognising the costs of acquiring servitudes that are immaterial to the initial cost (work-in-progress) of an infrastructure asset instead of recognising the cost separately as an intangible asset.  
• Presenting information – Not separately presenting a line item for heritage assets on the face of the statement of financial position as they are immaterial to that statement. Heritage assets are aggregated with other immaterial items on the face of the statement of financial position and presented separately in the notes.
• Disclosing information – Not disclosing detailed credit risk information in the notes to the financial statements as the entity only has a single transactional bank account.

Entities often ask if they need to keep records of these decisions  to assess if they could have a cumulative effect over time. Materiality is assessed based on facts and circumstances that exist at a point in time. As assessments of materiality are period specific, there is no need to consider the cumulative effect over time. Materiality thresholds and qualitative criteria developed today are assessed using all relevant information available, including information about any future plans or activities. If an error is made in  applying materiality, then it may be appropriate to restate prior period information.

The ASB issued IGRAP 21 on The Effect of Past Decisions on Materiality, which explains that materiality is period-specific and outlines when errors could arise in the application of materiality. IGRAP 21 is effective for financial years commencing on or after 1 April 2023. Earlier application is encouraged.

Disclaimer

The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.