Eumedion supports ESMA's call for more clarity in concept of 'materiality'
21-02-2012
Eumedion highly appreciates the European Securities and Markets Authority (ESMA) for publicly raising its concerns on the lack of a consistent view on materiality by preparers, auditors, users and in some cases accounting enforcers, as Eumedion wonders which body would have otherwise raised these concerns. Eumedion sees the inconsistent views as a potential threat to the quality of the financial statements of listed companies and harmful for investor interests and confidence. However, Eumedion questions whether a securities regulator should issue guidance regarding the concept of materiality. Eumedion thinks that the an international organisation like the International Federation of Accountants (IFAC) would be better equipped. This the core of Eumedion's response to ESMA's consultation paper 'Considerations of materiality in financial reporting'.
Eumedion states that in practice the concept of materiality is not always clearly and consistently understood and applied. Users and preparers of financial statements sometimes use another concept of materiality than auditors. Auditors also refer to materiality as described in auditing standards, including quantitative and qualitative factors. Eumedion concurs with ESMA dat more guidance is required. As ESMA is an organisation of oversight bodies, it is probably not the most obvious party to issue guidance. It is preferable that because the International Financial Reporting Standards (IFRS) are international standards, an international organisation issues such guidance. If guidance were given, principle-based instead of rule-based guidance is needed to make it possible to take into account entity-specific circumstances.