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Defining "Materiality"
Developments
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 Advisory
Committee on Improvements to Financial Reporting (CIFiR) 
- Discussion of potential benefits of guidance with
regard to materiality go to page 58
- Scheduled for discussion at 2.11.08 meeting
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SEC SAB 99
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Staff Accounting Bulletin 99
- Exclusive reliance on quantitative benchmarks to assess materiality is
inappropriate
- Misstatements are not immaterial simply
because they fall beneath a numerical threshold
Qualitative
factors cited by SAB 99
- Changes loss
into profit, or vice versa
- Masks a change in earnings or other
trends
- Hides a failure to meet analyst
expectations
- Affects compliance with loan covenants
- Increases executive compensation
- Volatility of issuer's stock price
- Effect on business segments
- Cumulative effect
- Management's intent
See
also SEC staff commentary
- Accounting Staff summary 8.31.01
-
Speech by SEC Commissioner 2.08.08
- Paul S. Atkins
- Remarks to SEC Speaks in 2008 Program (PLI)
- One of the most glaring examples of lack of predictability is determining what constitutes materiality. The crux of our federal disclosure system is that all material information must be disclosed with an emphasis on material. Yet the age-old question is: What does it mean to be "material"?
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SEC FAQs
SEC_CODE_REF_0090001192884
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SAB
103
Current
accounting - disclosure issues (3.05)
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Notable Cases / Enforcement Actions
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 SEC
v Siebel (SDNY 2005)
- Dismissed SEC's Regulation FD charges
- Comments by Siebel executives weren't material in
light of prior statements made by the company
- See
Regulation FD
In
re Huntington Bancshares (SEC C&D 2005)
- Charges of financial fraud and related
improprieties
- SEC charges were based on qualitative materiality
factors
- SEC invoked SAB 99 in this regard
- Amounts at issue enabled company to meet
analyst's EPS expectations
-
SEC C&D order
KPMG (SEC C&D
2004)
-
KPMG pays $10 million to
harmed Gemstar-TV Guide shareholders
-
Largest SEC penalty levied against an
accounting firm
-
Included charges over items that KPMG
deemed immaterial because small in amount
-
SEC asserted they had qualitative
impact
-
Affected revenue related to business
lines that were closely watched by securities analysts and had a material
effect on the valuation of Gemstar stock
-
SEC press release
-
SEC C&D order
In
re Sunbeam (SEC C&D 2001)
-
KPMG pays $10 million to
harmed Gemstar-TV Guide shareholders
- Given sensitivity of stock price to earnings shortfalls,
5.4% addition to quarterly earnings was material
Ganino
v Citizens Utilities (2d Cir 2000) [228 F3d 154]
- Refers to SAB 99 in reversing lower court ruling that a
1.7% revenue misstatement couldn't be material
In
re W R Grace (SEC C&D 1999)
- SEC charges were based on materiality to a business segment
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