The ASB recently shared comments on the IPSASB’s Exposure Draft 97, Making Materiality Judgments. These comments were informed by feedback received from stakeholders after local consultation. The proposed non-mandatory Practice Statement aims to assist public sector entities in making materiality judgements when preparing financial statements in accordance with IPSAS Accounting Standards.
Stakeholders supported the development of non-mandatory guidance that is based on the IFRS® Practice Statement 2: Making Materiality Judgements, adapted for the public sector. However, stakeholders concluded that the proposed guidance does not adequately reflect the public sector decision-making and accountability needs of the broader public sector user group. Key recommendations highlighted in the letter are:
- Public sector adaptation: The discussion on the information needs of the primary users focuses mainly on financial position, financial performance and cash flows. This guidance should be broadened to reflect a public sector perspective, for example whether resources were raised and used in line with the approved budget, and/or whether assets needed for service delivery are properly maintained.
- Public sector-specific examples: The examples in the Practice Statement should better explain how materiality is applied to IPSAS Accounting Standards for transactions that are unique to the public sector. For example, budget variances and related explanations when applying IPSAS 24 on Presentation of Budget Information in Financial Statements, accounting for transfer expenses using IPSAS 48 on Transfer Expenses, and accounting for revenue transactions using IPSAS 47 on Revenue.
- Qualitative considerations: Materiality judgements should involve both quantitative and qualitative considerations. In the public sector, qualitative considerations may often be more important or determinative. Our letter proposes that the guidance should place more emphasis on qualitative factors and explain that in the public sector, the nature, sensitivity and consequences of a transaction or event may be more important than its amount.
Stakeholders also recommended that some of the application guidance currently included in the proposed Practice Statement be issued separately, for example as an “IPSASB Explains” or question-and-answer publication. This would make it easier for the IPSASB staff to respond to practical implementation questions on the application of materiality when they arise.
You can access the comment letter to the IPSASB on the ASB website : SAASB ED 95
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.