Page 8 - 28. COMPILER QB - IND AS 8

Q6 (Nov. 22)

While preparing interim financial statements for the half-year ended 30th September, 20X1, an entity
notes that there has been an under-accrual of certain expenses in the interim financial statements for the

first quarter ended 30 th June, 20X1. The amount of under accrual is assessed to be material in the context
of interim financial statements. However, it is expected that the amount would be immaterial in the context

of the annual financial statements. The management is of the view that there is no need to correct the error
in the interim financial statements considering that the amount is expected to be immaterial from the point

of view of the annual financial statements. Whether the management‖s view is acceptable?

SOLUTION

Ind AS 8, inter alia, states that financial statements do not comply with Ind AS if they contain either
material errors or immaterial errors made intentionally to achieve a particular presentation of an entity‖s

financial position, financial performance or cash flows.
As regards the assessment of materiality of an item in preparing interim financial statements, Ind AS 34,
Interim Financial Statements, states that while judgement is always required in assessing materiality, this

Standard bases the recognition and disclosure decision on data for the interim period by itself for reasons of
understandability of the interim figures. Thus, for example, unusual items, changes in accounting policies or
estimates, and errors are recognised and disclosed on the basis of materiality in relation to interim period data
to avoid misleading inferences that might result from non-disclosure. The overriding goal is to ensure that an
interim financial report includes all information that is relevant to understanding an entity‖s financial position

and performance during the interim period.

As per the above, while materiality judgements always involve a degree of subjectivity, the overriding goal is to
ensure that an interim financial report includes all the information that is relevant to an understanding of the
financial position and performance of the entity during the interim period. It is therefore not appropriate to
base quantitative assessments of materiality on projected annual figures when evaluating errors in interim

financial statements.
Accordingly, the management is required to correct the error in the interim financial statements since it is
assessed to be material in relation to interim period data.

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