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SEC Split on FASB Definition of “Materiality”

By Stephen Barlas
November 1, 2017
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Steps with Two Choices

With the Financial Accounting Standards Board (FASB) moving toward a new definition of “materiality,” some have questioned whether the U.S. Securities & Exchange Commission (SEC) is sending mixed signals about the direction the FASB is moving in.

 

The FASB has proposed to remove the existing definition of materiality in Concepts Statement No. 8 and to replace it with a broad observation of the U.S. Supreme Court’s definition in the context of the antifraud provisions of the U.S. securities laws.

 

SEC Chairman Jay Clayton has said a flexible materiality standard is useful when a court is determining materiality, which would seem to be an endorsement of FASB’s direction. But the Commission’s Investor Advocate recently sent a letter to the FASB recommending that it “consider a different path to address the perceived deficiencies in its definition of materiality” than the one included in the Exposure Draft issued September 24, 2015, containing proposed amendments to Statement of Financial Accounting Concepts No. 8, Conceptual Framework for Financial Reporting. John Pappas, senior manager, Media Relations and Constituent Communications for the FASB, says the Board is beginning re-deliberations on the Exposure Draft and that the first meeting on the materiality topic should be scheduled soon.

 

Stephen Barlas has covered Washington, D.C., for trade and professional magazines since 1981 and since 1984 for Strategic Finance and its predecessor Management Accounting. You can reach him at sbarlas@verizon.net.
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