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ACCA Strategic Professional · Strategic Business Reporting (International) · Other reporting issues

Brava Ltd is deciding whether information about a customer dispute should be included in its financial statements. Under IFRS Practice Statement 2 Making Materiality Judgements, which approach reflects the four-step process?

Practice Statement 2 sets out a four-step process: identify information that might be material, assess whether it is material, organise it clearly in the draft statements, and review the draft as a whole. It does not prescribe fixed quantitative thresholds.

  1. AIdentify potentially material information, assess whether it is material, organise it within the statements, then review the draft statements as a wholeCorrect
  2. BApply a fixed 5% of profit threshold, then disclose any item exceeding it
  3. CAssess materiality only at the end of the reporting period using the final profit figure, without reviewing the draft
  4. DDisclose all information required by the Standards, then remove items the auditor considers immaterial

Explanation

The process is: identify, assess, organise, review. It is judgemental and not a fixed numerical rule. The 5% threshold option is wrong because Practice Statement 2 does not prescribe quantitative thresholds.

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