Materiality and contingent tax liability reporting.

Accounting Review, April, 2002 by Cristi A. Gleason

I. INTRODUCTION

In his speech "The Numbers Game," Securities and Exchange Commission (SEC) chairman Arthur Levitt (1998) decried the abuse of materiality as a "gimmick" firms use to manage earnings. Subsequently, the SEC (1999) issued Staff Accounting Bulletin (SAB) No. 99, Materiality. Lynn Turner (2000), SEC chief accountant, described SAB No. 99 as putting "people on notice that the use of simple quantitative cutoffs like 5 percent, or any other percent, as determining whether or not an item needed to be included or corrected are [sic] unacceptable. The real test is whether the information would make a difference when considered by a reasonable person." Accounting for loss contingencies provides a setting where materiality judgments are complex but could make a...