Clarifying fundamental concepts and the definition of materiality

As a reminder, the ISSB’s approach in the IFRS S1 exposure draft was to focus on investors’ needs, resulting in an approach based on financial materiality only with the objective of providing information on sustainability-related matters that is useful for assessing enterprise value.

Keywords: Mazars, Thailand, Sustainability, IFRS, ISSB, Materiality

22 December 2022

To clarify the fundamental concepts underpinning IFRS S1, the ISSB has tentatively decided to:

  • confirm that the objective of the standard is to require entities to meet the information needs of the primary users of general purpose financial reporting, who in practice, and according to the IASB’s Conceptual Framework, are existing and potential investors, lenders and other creditors;
  • to use the same definition of “material” – in the context of the materiality assessment to be carried out to identify the significant sustainability-related risks and opportunities to which the entity is exposed – as in the IFRS framework and IAS 1 in particular (i.e. information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity). At a future meeting, the ISSB will discuss whether further guidance is needed on how to determine whether information is material;
  • to amend the draft IFRS S1 by removing the term “enterprise value” from the objective and the description of materiality, although the ISSB will continue to redeliberate the meaning of the term at a future meeting, along with how it could be articulated in the context of the materiality assessment;
  • to remove the word “significant”, which was used to describe the sustainability-related risks and opportunities that an entity would be required to disclose. The use of the term “significant” rather than “material” generated a lot of questions and caused confusion. The ISSB will continue discussions at a later date on how to apply the principle of relative importance, and the process to be used by preparers to identify sustainability-related risks and opportunities in order to provide useful information to primary users.