Copy of Materiality

Copy of Materiality - Conceals unlawful transaction...

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Materiality SAB 99
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Purpose Exclusive reliance on quantitative benchmarks to assess materiality is inappropriate Misstatements are not immaterial simply because they fall beneath a numerical threshold
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Definition The omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.
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Qualitative considerations Precision/imprecision of estimate Masks trends Hides failure to meet analysts’ expectations Changes loss to income or vice versa Concerns significant segment Affects compliance with regulatory requirements or loan covenants Affects management compensation
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Unformatted text preview: Conceals unlawful transaction Aggregating and Netting Misstatements Should consider each misstatement separately Consider aggregate effect of all misstatements If individually material, can’t net other misstatements. Consider prior periods’ misstatements (SAB 108) Intentional Misstatements Can’t do it May be unlawful Considerations under the Exchange Act Books, records and accounts, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets. Depends on: Significance of misstatement (clearly inconsequential) How misstatement arose Cost of correcting misstatement Clarity of guidance (grounds for reasonable disagreement) GAAP always takes precedent over industry practice...
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This note was uploaded on 01/20/2011 for the course ACC 603 taught by Professor Robertj.ramsay during the Spring '10 term at Kentucky.

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Copy of Materiality - Conceals unlawful transaction...

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