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FASB Ideas on Materiality Reform Draw Heat, Questions

Tammy Whitehouse | November 17, 2015

An effort to align the accounting world’s definition of materiality with how the idea is widely understood in legal circles is sparking a fierce debate in corporate accounting circles, with potentially big consequences for financial reporting.

The issues involved—convergence with international accounting rules and the interplay of accounting and auditing standards—has led to the emergence of some extreme views on what happens to materiality if the Financial Accounting Standards Board proceeds as it has proposed.

The crux of the controversy is this: FASB wants to strike language in its conceptual framework that says, “Information is material if omitting or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity.” The conceptual framework is essentially guidance that FASB provides to itself, as a basis for writing accounting rules. The board would also change the definition of materiality in Topic...

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