ThinkTWENTY20

  • HOME
  • ERIC'S BLOG
  • FORUM
      • Hey! What's New?
  • ABOUT US
  • REGISTER
      • ThoughtLeader Gateway
  • EVENTS

A Vision for the Future of Corporate Reporting (Part 3): Decision Making and Materiality

on 03 November 2020

The UK’s Financial Reporting Council (FRC) has published a thought-leadership piece, A Matter of Principles: The Future of Corporate Reporting.[1] Does it portray the future of corporate reporting as you see it? Comments are due by February 5, 2021.

I have been trying to stir up the community to talk about materiality, primarily related to XBRL/Inline XBRL, but also related to other non-financial areas, such as Sustainability.

The executive summary for the FRC paper summarizes the discussion on materiality in this way:

“Materiality is essentially a filter for determining what information is included in a particular report. The general principle for materiality that we propose in the model is that materiality will be judged by reference to the communication objective of the specific report. We do not believe that a single definition of materiality is appropriate for all reports.”

In the call for comments, they ask:

“We are proposing that there should no longer be a single test for materiality that is based on accounting standards but instead materiality will be dependent on the objective of a report. Do you agree with this approach, please explain why?”

I am very pleased that the topic of materiality is of such importance to the paper. In fact, materiality is the 14thmost common word in the document. (“Reporting,” “corporate,” “report,” “information” and “network,” along with “that,” are the most frequently used words.)

I hope to spend more time on this topic; meanwhile, some immediate questions:

  • Is materiality driven by the reporter’s objective, the stakeholder’s decision-making requirements, or both?
  • While materiality in the financial reporting marketplace is commonplace, if not totally agreed-upon and understood, is materiality currently limited to accounting standards by its nature? Couldn’t any reporting framework define the bounds of materiality for that framework? ISA 320.2 and .3 are focused on financial reporting, but seem easily applicable to any reporting framework: will a material misstatement influence the economic decisions of users taken on the basis of the reports?

[1] https://www.frc.org.uk/getattachment/cf85af97-4bd2-4780-a1ec-dc03b6b91fbf/Future-of-Corporate-Reporting-FINAL.pdf.

Leave a comment

    Comments

    • No comments found
    Powered by Komento
    Forum Recent Posts
    The Independent Review Committee on Standard Setting in Canada Issues it's Final Report.
    Wednesday, 01 March 2023

    English

    Media Release – Independent review concludes, setting the stage for the future of Canadian accounting, auditing, and sustainability standard setting (frascanada.ca)

    The Independent Review Committee on Standard Setting in Canada issued its final recommendations report. The recommendations aim to ensure Canadian accounting and auditing – and now sustainability reporting and assurance – standard setting continues to be independent and internationally recognized. A summary feedback statement will soon be issued, outlining the feedback the committee received during its consultation process.

    New Limitations for External auditors and Their Reliance on the Work of Internal Auditors
    Monday, 27 February 2023

    The recent proposed rules from the PCAOB updating the confirmation standard, AS2310, caused some ruffled feathers when it added new limitations related to the external auditor and reliance on the work of internal auditors. Where the existing 2310, which was developed in large part by using the AICPA's AU 330 almost verbatim, pointed to existing standards related to the external auditor and their reliance on the internal auditor (AS 2605), the new proposed AS2310 added specific restrictions; these include not letting internal auditors select the population, do the mailings and receive responses.

    ThinkTWENTY20 © 2023. Privacy Policy