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European Securities and Markets Authority (ESMA) launches Consultation on Considerations of materiality in financial reporting

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.

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 purpose of this consultation paper is to seek comments from interested parties on their understanding of various aspects of materiality in an effort to contribute to a consistent application of this important concept in financial reporting.

The Consultation is available here: http://www.esma.europa.eu/popup2.php?id=8053

All contributions should be submitted online at www.esma.europa.eu under the heading ‘Consultations’ by 29 February 2012.

Who should read this paper

All interested parties are invited to comment on this consultation paper. It will be primarily of interest to those charged with the governance of issuers who prepare their financial statements under IFRS, the users of the financial reports prepared by same, the auditors of such entities, and other parties who have a particular interest in the concept of materiality and the application of same in an IFRS context.

Next steps

ESMA will consider the feedback it received to this consultation paper in Q2 2012. Based on the outcome of the consultation paper, ESMA will go further and publish a final report later in 2012.