AICPA Issues New Description of the Concept of Materiality
By Tom Parry, Navolio & Tallman LLP
The AICPA Auditing Standards Board (ASB) has issued a Statement on Auditing Standards (SAS) No. 138, Amendments to the Description of the Concept of Materiality. The ASB’s description of the concept of materiality has been consistent with the definition used by the International Accounting Standards Board (IASB) and the International Auditing and Assurance Standards Board (IAASB). Following the decision by the Financial Accounting Standards Board (FASB) in August 2018 to return to its original definition of materiality, which was in effect from 1980 until 2010, this amendment aligns the definition with the description of materiality used by the US judicial system, the Public Company Accounting Oversight Board, the US Securities and Exchange Commission, and the FASB.
The revised description now reads as follows:
“Misstatements, including omissions, are material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.”
For comparison, the previous description read:
“Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.”
The ASB believes it is in the public interest to eliminate inconsistencies with the description of materiality used by the US judicial system and other US standard setters and regulators. Furthermore, because the revised description is now aligned with the FASB, the ASB believes that it is substantially consistent with current US-firm practices with respect to determining and applying materiality in an audit or attest engagement. Accordingly, US practice is neither expected nor intended to change.
The SAS becomes effective for periods ending on or after 15 December 2020.
Tom ParryGGI member firm
Navolio & Tallman LLP
Advisory, Auditing & Accounting, Tax
San Francisco (CA), USA
T: +1 415 956 1750
Navolio & Tallman LLP is a boutique CPA firm located in San Francisco. Their holistic approach to working with clients, their relationships based on trust, and their advanced accounting and tax expertise are the perfect combination to help clients meet and exceed their goals.
Tom Parry oversees quality control at Navolio & Tallman. He is the immediate past chair of the AICPA Peer Review Board, member of the CA Peer Review and Accounting Principles and Auditing Standards Committees and serves on the Quality Control task force of the US Auditing Standards Board. He also provides peer review and quality control services for other firms.
Published: Auditing, Reporting & Compliance Newsletter, No. 03, Spring 2020 l Photo: trongnguyen - stock.adobe.com