The Authority’s Head of Financial Reporting Supervision, Michael Kavanagh, is Chair of the ESMA sub-group on materiality which produced the consultation paper.
A recurring theme of discussions at the European Enforcers Coordination Sessions (a forum in which all European National Enforcers of financial information meet to exchange views and discuss experiences of enforcement of IFRS) is the apparent differing views regarding the practical application of the concept of materiality amongst preparers, auditors, possibly users of the financial reports and, in some instances, accounting enforcers. The objective of financial statements is to provide information to a range of users for the purpose of economic decision making. To be useful, such statements must present fairly the financial position, performance and cash flows of the reporting entity. Where information which is required by the relevant financial reporting framework is omitted or misstated and such information could influence the economic decision-making of a user, financial statements cannot be said to achieve a fair presentation. The concept of ‘materiality’ is used to describe such information.