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In August, the SEC issued Staff Accounting Bulletin (SAB) 99 to clarify principles of materiality for those who prepare or audit financial statements filed with the SEC. SAB 99 does not present new materiality standards but, instead, reaffirms long-- accepted concepts expressed in auditing and accounting literature. It also provides interpretive guidance to ensure those concepts are applied properly in today's complex reporting environment.
The bulletin's most important points are that
* Registrants and auditors may not rely solely on quantitative criteria to evaluate an item's materiality.
* The materiality of items can be determined reliably only if they are evaluated both individually and collectively,
* An intentional misstatement may be illegal even if the item it concerns is immaterial.
According to the bulletin, "Quantifying in percentage terms the magnitude of a misstatement is only the beginning of an analysis of materiality; it cannot appropriately be...