MATERIALITY

MATERIALITY

MATERIALITY



Why did the SEC audit staff feel the need to issue the bulletin at this time?

This staff accounting bulletin expresses the views of the staff that exclusive reliance on certain quantitative benchmarks to assess materiality in preparing financial statements and performing audits of those financial statements is inappropriate; misstatements are not immaterial simply because they fall beneath a numerical threshold. The statements in the staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing the Commission's official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws.

The staff hereby adds Section M to Topic 1 of the Staff Accounting Bulletin Series. Section M, entitled “Materiality,” provides guidance in applying materiality thresholds to the preparation of financial statements filed with the Commission and the performance of audits of those financial statements.

2. In the bulletin, the staff cites the FASB''s Concepts Statement No. 2. Does the Statement support or oppose the position of the audit staff?

The third phase of the project concerns how issuers should account for financial instruments that have both liability and equity characteristics. That question necessarily involves distinguishing between liability and equity instruments.

Here, too, with the assistance of its task force the FASB is preparing a separate discussion document that's scheduled to be issued in 1990. This document will be a neutral discussion of the issues without preliminary views of the FASB. Its focus will be on the definitions of liabilities and equity provided in FASB Concepts Statement no. 6, Elements of Financial Statements, with a view to clarifying and elaborating on them or perhaps revising them in some respects. The document will discuss such questions as these: Does a financial instrument (such as a stock purchase warrant or an employee stock option) that obligates an enterprise to issue its own stock at a fixed price rather than to transfer its assets qualify as a liability on the balance sheet? Does a financial instrument (such as mandatorily redeemable Redeemable Eligible for redemption under the terms of an indenture. Preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. or a put option written on an enterprise's own common stock) that obligates an enterprise to redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. The act of buying something that one previously sold or owned.

Noun 1. Its own equity instruments for a specified price or at a specified time in the future qualify as a liability for financial reporting purposes? The FASB ...