ABSTRACT:
The changes made to the Italian Civil Code by Legislative Decree 139/2015 and the recent revision of Italian GAAP have introduced radical changes in the process of preparation of financial statements. The changes involve many areas of this process – ranging from the presentation of accounting items to their recognition and valuation – and introduce significant discontinuity in reporting practices at the national level. Such a discontinuity seems even more pronounced when considering that the materiality principle plays a crucial part in the new normative architecture and that a subjective interpretation of this principle could produce pervasive effects. Against this background, the present paper aims at providing an in-depth exploratory analysis on the actual application of the materiality principle to shed light on the reasons underpinning companies’ accounting choices. In this respect, we deserve particular attention to the trade-off faced by Italian companies among an application of the materiality principle in line with the true and fair view, the attempt to reduce administrative burdens and opportunism. To achieve our objectives, we examine a sample of 248 financial statements that refer to the fiscal year ending on 31 December 2016. By analysing both quantitative data and qualitative information, we present evidence on the actual application of the materiality principle with reference to two critical areas, namely financial derivatives and the use of the amortised cost for loans. The results show that, overall, companies’ accounting choices seem guided by the need for reducing the administrative burden. However, when considering choices on amortised cost, in highly leveraged companies the need for simplification is mitigated by the interest in containing the debt ratio.
KEYWORDS: materiality; financial derivatives, amortised cost; Italian GAAP; Legislative Decree 139/2015.
