FOR IMMEDIATE RELEASE 99-99 Commission Staff Issues Accounting Bulletin Addressing the Concept of Materiality in the Preparation and Auditing of Financial Statements Washington, DC, August 13, 1999 -- The staff of the Securities and Exchange Commission has released Staff Accounting Bulletin (SAB) No. 99, which addresses the application of "materiality" thresholds to the preparation and audit of financial statements. SABs are not rules or interpretations of the Commission; they represent interpretations and practices followed by staff of the Office of the Chief Accountant and the Division of Corporation Finance in administering the disclosure requirements of the federal securities laws. The accounting and auditing literature indicate that certain pronouncements need not be applied to items that are immaterial to the financial statements. SAB No. 99 restates existing concepts of "materiality" expressed in the accounting and auditing literature as well as in long standing case law. The SAB states that, under those concepts, registrants and the auditors of their financial statements should not rely exclusively on quantitative benchmarks to determine whether an item is material to the financial statements. Equally important is a consideration of whether, in light of the surrounding circumstances, a reasonable investor would consider the item to be important. The SAB also states that management should not make intentional immaterial errors in a registrant's financial statements to "manage" earnings. It further reminds registrants of their legal responsibility to make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect transactions and the disposition of assets. The SAB reminds auditors of their obligations to inform management and, in some cases, audit committees of illegal acts that come to the auditor's attention. The SAB fulfills a promise made by SEC Chairman Arthur Levitt last fall that the staff would clarify its views on the criteria for evaluating materiality. Chairman Levitt's remarks were in response to an increasing practice of some registrants using "immaterial" adjustments to their financial statements to impact, or manage, reported earnings. Lynn Turner, the Commission's Chief Accountant, said, "This Staff Accounting Bulletin does not break any new ground, but it is a needed reminder to both registrants and auditors that they have to consider carefully the impact of an item on investors before deciding that it is immaterial. Decisions on materiality often are not easy. The SAB points out some key factors that should be taken into account when making those decisions." # # #