SEC Staff Accounting Bulletin No. 99 Materiality Assignment

SEC Staff Accounting Bulletin No. 99 Materiality AssignmentSEC Staff Accounting Bulletin No. 99
Materiality Assignment

This assignment requires that you log onto the Securities and Exchange Commission’s web site (www.sec.gov). Once you are on the web site, scroll down to the section labeled “Staff Interpretations” and then click on the link titled “Staff Accounting Bulletins.” Then, on the next screen you should scroll down until you see the link to “SAB No. 99”, dated August 12, 1999. Click on the SAB 99 link. Use this document to answer the questions noted below. If you have any trouble with the above instructions, try this address to locate SAB No. 99: http://www.sec.gov/interps/account/sab99.htm.
Read SAB No. 99 to answer these questions:
? Who is responsible for issuing Staff Accounting Bulletins?
? What types of companies does SAB No.99 apply to?
? What is the main purpose of SAB No. 99 (e.g., Why did the SEC deem it necessary to issue the SAB?)?
? What does SAB No. 99 conclude about the use of a numerical threshold in establishing materiality? How should such a threshold be used?
? Briefly summarize in your own words the FASB Statement of Financial Accounting Concepts No. 2 definition of “materiality.”
? In assessing the “total mix” of information surrounding a misstatement, what does the Staff of the SEC believe management and an auditor should consider?
? Give two examples from SAB No. 99 of a quantitatively immaterial misstatement that might be deemed “material” from a qualitative perspective.
? Assume that you found a misstatement in inventory that you believe materially overstates inventory and total assets. Then, assume that you found a second misstatement that you believe materially understates accounts receivable and total assets by approximately the same amount as the inventory misstatement. How does SAB No. 99 address management’s and the auditor’s ability to let the two misstatements offset one another without either misstatement being corrected in the financial statements?

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