The new requirements for the disclosure of material accounting policies apply to annual reporting periods beginning on or after 1 January 2023. These changes require preparers to take a closer look at the content of their accounting policy note for financial years beginning on or after 1 January 2023.

The changes require entities to disclose ‘material accounting policy information’, rather than ‘significant accounting policies’.

In Australia the release of amending standards AASB 2021-2 and AASB 2021-6 have affected:

• Paragraph 117 of AASB 101 Presentation of Financial Statements, which applies to Tier 1 for-profit and not-for-profit entities
• Paragraph 25 (and related paragraphs) of AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities
• Paragraphs 39 and 40 of AASB 1049 Whole of Government and General Government Reporting, impacting public sector financial statements
• Paragraph 6.1 of APES 205 Conformity with Accounting Standards, which applies to entities that prepare special purpose financial statements

In New Zealand the amending standard has changed:

• Paragraph 117 of NZ IAS 1 Presentation of Financial Statements, which applies to Tier 1 and Tier 2 for-profit entities

At first glance, it might seem like a terminology update. However, the change could be more significant and far reaching than may be initially expected. It is the next stage in the progress to improve the usefulness of financial statements to users, by challenging financial statement preparers to consider the relevance of the accounting policy information through the ‘materiality’ lens. The general premise is that “information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements.”

To comply with the new requirement preparers need to ensure that:

• Only accounting policies related to transactions and events that are material to the entity in the current or prior year are included in financial statements.
• Only accounting policy information that users really need to help them understand the financial statements should be included, a decision influenced by such factors as to whether changes in accounting policies have been made or where significant choices or judgements are being exercised.
• The wording of the accounting policies needs to show how the entity has applied the requirements of the standard to its own specific circumstances, including the accounting policy choice (i.e., no boiler plate language that simply restates the requirements of standards).

While you can still disclose immaterial information, the obligation is on preparers to make sure the immaterial information is not obscuring the material information.

Paragraph 117B of AASB 101/NZ IAS 1 includes example scenarios that should help preparers assess what policies are necessary and what can be removed. Further assistance can be found in an updated version of AASB Practice Statement 2 Making Materiality Judgements and in recent publications of the major firms including:

• BDO Australia and BDO New Zealand
• EY New Zealand (Page 14)
• KPMG
• Pitcher Partners
• PwC Australia and PwC New Zealand 

Illustrative financial statements implementing the new requirements to 31 December 2023 year ends are also available, including the following:

• BDO Australia (Note 44) and BDO New Zealand (Note 44)
• Deloitte (Section B1.4)
• EY (Appendix D)
• KPMG
• PwC (Note 25)

Audit implications

There have also been consequential amendments to the auditing standards in both Australia and New Zealand as a result of the revisions to the accounting standards.

The AUASB made its suite of consequential amendments via the release of ASA 2023-1 in March 2023. An equivalent amending standard was issued by the NZAuASB in May 2023. The updates included changing the wording of the template auditor’s reports and other requirements and guidance where they reference ‘accounting policies’ in the financial statements.

Therefore, auditors should ensure that the wording of their auditor’s reports are similarly updated this financial year.