Accountants certainly have a challenge to meet when it comes to applying the IFRS principle of relevance.
IFRS says that an item is relevant if the information about that item has the potential to influence significantly the decisions of lenders, investors, and other users of the financial statements.
The IFRS principle of relevance corresponds to the GAAP principle of materiality. Although many accountants and audit firms start with a dollar amount as a minimum guideline, many accounting professionals are already following a standard already very close to IFRS.
In other words, the GAAP materiality principle means that information which could make a difference in the decisions of lenders, investors, and other users of the statements, should be included at least in the notes, if not in the body of the financial statements.
The IFRS requirement that only relevant information should be included means that the accountant must decide the level of detail to be included in the notes. Therefore, given that IFRS also demands clarity, the notes to the financial statements must be capable of being understood by the users of the financial statements. It is important that the notes add value to the financial statements by adding clarity. If, instead, they just add confusion, lenders and investors will not feel confident and hesitate to provide much needed capital. They need to believe the story the company is telling them through the financial statements. Accountants must be skilled communicators by providing relevant, clear, concise notes to the financial statements.
Accounting professionals must always be prepared to meet the challenge of defending their decisions concerning relevance to management and the auditor.
If you would like to learn more about IFRS and what these new standards will mean for Canadian companies, sign up for one of
Mike Morley
’s classes. Mention that you were referred from TheGAAP.net. Visit our accounting events page to see what offers are available for Mike Morley seminars.
Mike Morley can be reached at www.mikemorley.com or phone: 416-275-1278 or email: mike@mikemorley.com or connect with Mike on LinkedIn.
About the author: Mike Morley is a Certified Public Accountant who holds the top credit designations in the U.S., Canada, and the U.K. Mike is the author of several books including “Sarbanes-Oxley Simplified,” which is an easy-to-read explanation of the requirements of the U.S. legislation that makes CEO's & CFO's personally responsible for the accuracy of their company's financial statements.
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