IGRAP 21 on The Effect of Past Decisions on Materiality is effective for entities with year ends on 31 March 2024, 30 June 2024 and 31 December 2024. The Interpretation explains the nature of past materiality decisions and their potential effect on current and subsequent reporting periods.

Entities apply accounting policies  set out in the Standards of GRAP (i.e. principles on recognition, measurement, presentation and disclosure), except when the effect of applying them is immaterial. IGRAP 21 explains the implications of adopting accounting policies for material items based on the Standards of GRAP as well as applying alternative accounting treatments for immaterial items. Alternative accounting treatments are not based on the Standards of GRAP – an example is where an entity expenses immaterial items of property, plant and equipment.

The Interpretation applies to accounting policies and alternative accounting treatments related to the recognition and measurement of items. The presentation and disclosure of items are dealt with in GRAP 1 on Presentation of Financial Statements.

IGRAP 21 addresses the following two key issues:

#1 Do past decisions about materiality affect future reporting periods?

Materiality is assessed using all relevant facts and circumstances at the time of its assessment. Quantitative materiality thresholds and qualitative materiality criteria are determined when setting materiality. Where there is information available about future events or transactions, materiality assessments should consider its impact. Materiality is assessed at a point in time based on available information. From this we can conclude that the assessment of, and decisions about, materiality are period-specific and do not affect subsequent reporting periods unless an error has occurred.

Where an entity changes the accounting of an item from an accounting treatment to a GRAP accounting policy because facts and circumstances relating to the item have changed, the change is not a change in accounting policy and therefore retrospective adjustments should not be made. Changes in accounting policy are where an entity changes from an accounting policy based on GRAP to another accounting policy based on GRAP. GRAP 3 on Accounting Policies, Changes in Accounting Estimates and Errors requires retrospective adjustments to financial statements where there is a change in accounting policy or where and a prior period error has occurred.

#2 Is applying an alternative accounting treatment an error, or a departure from the Standards of GRAP?

GRAP 3 allows entities to not apply the accounting policies outlined in the Standards of GRAP when the effect of applying them is immaterial. This means that the application of materiality and alternative accounting treatments are not errors and are not departures from the Standards of GRAP. Alternative accounting treatments should be developed so that they are not inconsistent with the qualitative characteristics in the Conceptual Framework for General Purpose Financial Reporting.

An entity can essentially have two policies for an item:

• where the item is material, the entity’s GRAP accounting policy is applied e.g. accounting for material items of property, plant and equipment in terms of GRAP 17 on Property, Plant and Equipment; and
• where the item is immaterial, the entity’s internal policy on the item’s alternative accounting treatment is applied e.g. expensing immaterial items of property, plant and equipment in the Statement of Financial Performance.

For more information on IGRAP 21, access the full Interpretation and the Fact Sheet here.