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August 19, 2012

More guidance on application of materiality needed: ESMA

The main issue found on materiality in financial reporting is in the application, according to the majority of respondents to a European Securities and Markets Authority (ESMA) consultation.

The consultation, which was launched in November 2011, found that while the majority of all respondents believe the concept of materiality is generally well understood, they see diversity in application thus more guidance is needed.

However, the majority think the guidance should come from the International Accounting Standards Board.

The main reason for diversity in application was attributed to management judgement, separate perspectives of different stakeholder groups, and general difficulties in applying the concept to certain issues.

Many respondents also said the application of materiality concept to disclosures could help address the problem of ‘too many disclosures obscuring the reporting about an entity’s financial position and performance’.

There were also calls for the principles to be applied in assessing materiality in interim and annual financial reports to be the same.

ESMA is due to hold a public roundtable in Paris later this year to discuss the various issues raised in response to the consultation paper.

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