Applying the specific IFRS and the materiality threshold

Learning objectives

• Identify the IFRS that specifically applies to a transaction and infer from it the accounting policy required.L1, L2
• Assess whether an immaterial departure from IFRSs is acceptable or is an intentional departure made to achieve a particular presentation.L2, L3

Normative references

• IAS 8 §7When an IFRS specifically applies to a transaction, other event or condition, the accounting policy applied to that item is determined by applying that IFRS.
• IAS 8 §8Accounting policies set out in IFRSs need not be applied when the effect of applying them is immaterial; however, it is inappropriate to make, or leave uncorrected, immaterial departures from IFRSs to achieve a particular presentation of an entity's financial position, financial performance or cash flows.
• IAS 8 §9IFRSs are accompanied by guidance to assist entities in applying them, each stating whether it is an integral part of IFRSs. Guidance that is an integral part is mandatory; other guidance contains no requirements for financial statements.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

16 questions

• When an IFRS specifically applies to a transaction, the entity may nevertheless select another policy if it considers it more relevant.L1
• An accounting policy set out in IFRSs need not be applied when the effect of applying it is immaterial.L2
• An immaterial departure from IFRSs remains acceptable even when it is deliberately kept to smooth profit.L2
• Laivot leases a warehouse and wonders which policy to apply to this lease. What does IAS 8 require?L1
• For simplicity, Leudane expenses small tools whose unit value is below an internal threshold; the cumulative effect is immaterial (case data) and no presentation objective is pursued. Is this practice compatible with IAS 8?L2
• Which of these practices does IAS 8 describe as inappropriate?L2
• In which case must management use its judgement to develop an accounting policy itself?L1
• Which statements about applying IFRSs are correct?L2
• Notelle is considering several practices whose effect, taken individually, is immaterial (case data). Which ones comply with IAS 8?L2
• Gautia sells machines with installation. Its manager proposes to recognise all revenue when cash is received, as it is 'easier to track', whereas the standard on revenue from contracts with customers applies to these sales (case data). What should be done?L2
• Tivane omitted a small accrued expense (immaterial according to the case data). Without it, profit just exceeds the threshold that triggers management bonuses. The finance director proposes not to record it 'since it is immaterial'. What is your conclusion?L3
• Cherine does not discount very short-term trade payables; the effect is immaterial (case data) and the practice is applied every year, with no link to a profit objective. How should it be described?L2
• The finance director of the Dremine group, used to a foreign GAAP, wants to apply that GAAP's practice to its property, plant and equipment, although an IFRS specifically deals with these assets. What is the answer?L2
• Kastia accumulates five small departures from IFRSs, each immaterial (case data). Together, they bring the gearing ratio just below the ceiling of a bank covenant. Management refuses to correct them. Which analysis is right?L3
• Zosenne wants to adopt a threshold below which equipment purchases are expensed rather than capitalised. Management control provides the estimated cumulative effect and confirms that no remuneration indicator or covenant is affected (case data). Write a position paper.L3
• When reviewing Pomède's accounts, you note that an immaterial charge was delayed by one year. The minutes of the management committee mention the objective of showing 'continuous profit growth'. Write your analysis for the audit committee.L3