item and the circumstances in which the judgment has to be made, will not generally be a sufficient basis for a materiality judgment.” To assist auditors in determining relevant considerations in determining materiality, SAB 99 provided a partial list of situations where misstatements that are quantitatively small may be deemed material. These situations include misstatements which: Arise from an item capable of precise measurement or from an estimate and, if so, the degree of imprecision inherent in the estimate Mask a change in earnings or other trends Hide a failure to meet analysts’ consensus expectations for the enterprise Change a loss into income or vice versa Concern a segment or other portion of the registrant’s business that has been identified as playing a significant role in the registrant’s operation or profitability Affect the registrant’s compliance with regulatory requirements, loan covenants or other contractual requirements Have the effect of increasing management’s compensation Involve the concealment of an unlawful transaction SAB 99 is an attempt by the SEC to provide guidance to auditors when dealing with areas that have the possibility of becoming material. This guidance will help to provide investors with more complete information, which is necessary to make sound financial decisions.The concept of materiality in financial reporting is a sensitive and difficult topic to define. The quantitative measures of materiality, which were almost exclusively followed for so long by public accounting firms, are not sufficient when making the decision regarding financial disclosures. The issuance of SAB 99 will help auditors to more closely consider qualitative measures, which are notably more difficult to pinpoint, yet can carry a great impact on materiality and financial decisions. ...
