as a material statement. Qualitative materiality is not as straightforward or easy to measure. In an attempt to clarify qualitative materiality, FASB asserted that “materiality judgments can properly be made only by those who have all the facts.” Thus, qualitative materiality takes into account the relevance and reliability of a fact to determine its effects on the financial statements, encompassing the information available in its entirety. The Securities and Exchange Commission (SEC) is an agency of the federal government whose purpose is to help to provide investors with reliable information for use in making financial and investment decisions. The SEC has determined that the creation of accounting principles and auditing standards should be left to the accounting professionals, namely the Financial Accounting Standards Board (FASB) and the Auditing Standards Board (ASB). However, the position of the SEC is greatly taken into account when changes are proposed. Recently, the SEC disclosed its position on the practice of using quantitative benchmarks in determining materiality. On August 12, 1999, the SEC released Staff Accounting Bulletin 99. This bulletin expressed the view of the SEC that “exclusive reliance on certain quantitative thresholds to assess materiality is inappropriate.” SAB 99 eliminated the common “rule of thumb” practice followed by most public accounting firms that allowed transactions affecting financial statements by an amount less than five percent to be disregarded and deemed immaterial. The quantifying of materiality in a percentage term should be just the beginning of a materiality analysis. The emphasis of the SEC’s bulletin was to encourage auditors to view facts in the context of the surrounding circumstances. All relevant factors, both quantitative and qualitative, must be accounted for and “magnitude by itself, without regard to the nature of the ...
