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Gemstar Case Sets New Standard For Qualitative Materiality

Matt Kelly | November 9, 2004

It was a stern reminder the Securities and Exchange Commission sent to the auditing world recently: Appearances do matter.

The agency delivered a $10 million rap on the knuckles to KPMG on Oct. 20, for ignoring improper revenue statements from its client Gemstar-TV Guide International. The inflated revenues themselves weren’t much: $212 million from late 1999 to early 2002, a period when Gemstar’s total revenues topped $3.43 billion. Instead, SEC officials punished KPMG because the misstatements were qualitatively material, troubling more for their meaning than their size.

“It was a problem in this case, and I don’t think it was unique,” says Kelly Bowers, assistant regional director for the SEC in California, where the complaint was made. “We hope it sends a message to the accounting community.”

Qualitative Vs. Quantitative

The message,...

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