Proposed amendments to the description of the concept of materiality
FINANCIAL REPORTING INSIGHTS |
The Auditing Standards Board’s (ASB) current definition of materiality is consistent with the definition of materiality used by the International Accounting Standards Board and the International Auditing and Assurance Standards Board. In August 2018, the Financial Accounting Standards Board amended its definition of materiality to be consistent with the U.S. judicial system, the SEC and the auditing standards of the Public Company Accounting Oversight Board. The ASB believes it is in the public interest to eliminate inconsistencies between the definition of materiality in AICPA Professional Standards and the definition of materiality used by the U.S. judicial system and other U.S. standard setters and regulators. Therefore, the ASB recently proposed amendments to the materiality concepts discussed in existing auditing and attestation standards.
Materiality is described in existing AU-C section 320 as:
“Misstatements, including omissions, are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence economic decisions of users that are taken based on the financial statements.”
If finalized, the proposed amendments would change that description to:
“Misstatements, including omissions, are considered to be material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment of a reasonable user made based on the financial statements.”
If issued as final, the proposed Statement on Auditing Standards would be effective for audits of financial statements for periods ending on or after December 15, 2020, and the proposed Statement on Standards for Attestation Engagements would be effective for practitioners’ reports dated on or after December 15, 2020.
The Exposure Draft is available for comment until August 5, 2019.