The AICPA’s Auditing Standards Board issued an exposure draft of a proposed SAS and proposed SSAE titled Amendments to the Description of the Concept of Materiality. When effective, the proposed amendments would impact the description of when misstatements are considered material, adding consistency to the description of materiality. In fact, the proposal would align the concept of materiality in the AICPA Professional Standards with the definition of materiality used by the PCAOB, SEC, FASB, and the U.S. judicial system. The amendments are not expected to significantly affect practice in the United States. Feedback is due by August 5, 2019.
Ultimately, I think what most practitioners care most about is whether or not this changes the current mechanics of how materiality is calculated, which it sounds like this will most likely will not do that. However, from a legal standpoint, I do not see how we can use definitive language such as would, even if we approach it from the point of a reasonable user. Every user of financial statements have different priorities when it comes to the information they are looking for in a set of financial statements. A bank lender is going to look at financial statements differently than an investor in a for profit, a donor at a nonprofit or a member at a trade association. There are going to be some areas that I do not feel are material based on the current definition of influencing a user’s decision-making process. I might be able to see where it could be possible someone else would find it material, but I wouldn’t assert that it would be material to someone else. At a minimum, I would think practitioners, would want to get in writing from their clients a list of all known users if it is going to be argued that an omission would be material to a user and that the practitioner should have known that. How would you reach a definitive conclusion that a user’s judgment would be influenced by a misstatement or omission if you do not even know who the users are?