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An Overzealous Definition Of Materiality?

Colleen Cunningham | May 30, 2007

Few concepts involving the preparation of financial statements in conformity with Generally Accepted Accounting Principles are as difficult to address as “materiality.” This is an issue that has been covered by Compliance Week extensively over the last few months; in May, the publication was the first to break the story that the SEC was indeed considering an update to its views on materiality, and former SEC deputy chief accountant and Compliance Week columnist Scott Taub recently penned a column on materiality as it pertains to restatements.

And it’s a topic that deserves considerable discussion. Back in the day, we simply applied a “qualitative” test to determine whether something was material enough to be adjusted for or not. This was usually about 5 percent of net income or total assets, depending on whether the adjustment was related to the income statement or the balance sheet.

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