SEC Acting Chief Accountant Issues Statement on Evaluating Materiality of Errors

SEC Acting Chief Accountant Paul Munter has issued a statement discussing the importance of objectivity in the evaluation of the materiality of errors and focusing on the views of reasonable investors. Mr. Munter highlighted several arguments that the OCA staff has not found persuasive when considering registrants’ assessments of the materiality of errors. These arguments included the following:

• Certain financial statements or line items are not relevant to an investment decision since they do not provide useful information to investors.
• Historical financial statements are not relevant to an investment decision since investors focus on current information.
• The prevalence of an error across many registrants indicates that a registrant did not intend to misstate results.

Mr. Munter also emphasized the importance of consulting with auditors during this assessment and evaluating the impact of errors on management’s assessment of internal controls over financial reporting. This statement builds on a previous statement by Mr. Munter at the 2021 AICPA & CIMA Conference on Current SEC and PCAOB Developments (see the “Materiality and Assessment of Errors” section in Deloitte’s December 12, 2021, Heads Up on the conference) as well as remarks from Division of Corporation Finance Chief Accountant Lindsay McCord.