What are the latest views on materiality in financial accounting? How have standards for measuring materiality changed since passage of the Sarbanes-Oxley Act? And what new approaches are being taken to better assess the materiality of financial information? In the aftermath of the Enron scandal, corporate financial statements are under greater scrutiny than ever, forcing auditors to pay closer attention to many transactions previously considered immaterial. This paper reviews the basis of materiality in financial reporting and the methods commonly used to assess what is – and what is not – material.
The concept of materiality has been receiving increased scrutiny by the Securities and Exchange Commission since at least 1998, when then-chairman Arthur Levitt made his much-quoted “Numbers Game” speech. Levitt complained of the misuse of materiality by companies that deliberately record misleading financial information to increase their
