Can “obscuring” information affect materiality?

Materiality has to do with making the most important information in the financial statements known to users. Materiality affects the choice of accounting policy and what and how information is presented.

The IPSASB has proposed amendments to the description of materiality in its Conceptual Framework. The Conceptual Framework explains that: “Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence the discharge of accountability by the entity, or the decisions that users make  based on the entity’s GPFRs prepared for that reporting period.”

Obscuring information

While materiality has traditionally been concerned with not omitting or misstating material information in financial statements, it is increasingly important that entities do not “obscure” material information. Examples of “obscuring” material information could include:

• Cluttering the financial statements with excess immaterial information such that material information is hidden.
• Using inappropriate labels for material items in the financial statements.
• Combining material items with immaterial items when their nature is dissimilar.
• Dispersing information about parts of a material transaction across the financial statements such that the full effect of the transaction cannot be deduced or is unclear.

Degree of influence

The reference to “reasonably be expected to influence”  instead of “could influence” means that there is a different threshold that will be applied in the future. Knowing whether something “could influence” differs from knowing whether something “could reasonably influence”. Assessing whether something “could influence” would require the entity to understand its users’ needs.

Have your say?

Comment to the IPSASB is due on 31 May 2022. As the ASB‘s Conceptual Framework is based on the IPSASB’s, any changes would need to be considered by the Board. The ASB will have a series of  roundtable discussions to discuss the proposed changes in ED 81 so that comments can be submitted to the IPSASB. ED 81 of the IPSASB has been published concurrently by the ASB as ED 197. Information about the project can be accessed using this link. If you are interested in joining the discussions, please contact E van der Westhuizen at eliznav@asb.co.za.