Amended definition of Materiality

The definition of "Materiality" under Indian Accounting Standards (Ind AS) was amended in July 2020, aligning with the amendments in International Accounting Standards (IAS).

What was the definition before amendment?

“Omissions or misstatements of items are material, if they could individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.”

Salient points of old version

Emphasis is on

1. whether the users’ decisions could be affected from misstatement or omission.
2. Considers both the size and nature of item and
3. Involves professional judgement considering the surrounding circumstances.

What’s the amended provision?

The revised definition now reads: “Information is considered material, if omitting, misstating or obscuring it, could reasonably be expected to influence the decisions that the primary users of general-purpose financial statements make on the basis of those financial statements.”

Key points in the amended version:

Any Information if omitted, misstated and obscured (recently amended), can influence or change the decision that’s taken by user of FS, then the information is said to be material.

What is obscuring?

1. Hiding an information by usage of vague or unclear language
2. Deliberately scattering the information here and there, so that user doesn’t get a cohesive picture.
3. Information being overshadowed by immaterial data that reduces clarity.

Things that are different in the amended version:

1. “Obscuring” is added as a form of material misrepresentation. By adding the term ‘obscuring of info’ to the definition, the standard highlights the importance of presentation in analysing ‘what is material’.
2. The earlier version didn’t explicitly say “primary” users, but the implication was always there. After all, who else other than investors, lenders, and creditors rely on financials to make decisions!
   The amended version explicitly considers the potential impact on decisions of primary users.
3. That direct mention of ‘size and nature’ is missing in new definition—But it can be considered as implicitly captured under the umbrella of “reasonably expected to influence decisions.”