Investor Presentaiton
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CA
THE INSTITUTE OF
CHARTERED ACCOUNTANTS OF SRI LANKA
Highlights (contd..)
Qualitative assessment:
Applying materiality involves a qualitative assessment.
Management could use quantitative thresholds to assist their
judgements about materiality in the preparation of the financial
statements.
Eg: preliminary assumption that any income or expenses lower than
a particular % of profit or a particular percentage of revenue would
be unlikely to be material to the financial statements.
However, for some disclosures, materiality considerations are more
sensitive.
Eg: a relatively small amount might be material if it relates to directors'
remuneration.
At a practical level, those responsible for preparing the financial
statements need to assess the likelihood that a change in the content of
the financial statements, or how the information is presented, could
influence the decisions made by the primary users of those financial
statements.
CA Types of considerations in
THE INSTITUTE OF
CHARTERED ACCOUNTANTS OF SRI LANKA
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applying materiality
What are the characteristics of the primary users of general
purpose financial reports (decision-makers)?
(focusing on common information needs does prevent the
reporting entity from including additional information that is
most useful to a particular type of primary user)
What types of decisions are the primary users making and is
information likely to influence those decisions ('influence' does
not necessarily mean 'change')?
(Those decisions involve buying, selling or holding equity and debt
instruments, and providing or settling loans and other forms of
credit)
What is the appropriate context for assessing whether
information is material?
(on the face of the financial statements (sometimes; in the
notes; or on the basis of the financial statements as a whole)
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