SEC Staff Accounting Bulletin No. 99 (SAB 99)
Definition
A 1999 SEC interpretive release stating that the traditional five-percent quantitative threshold for materiality is not a safe harbour and that qualitative factors can make a numerically small misstatement material. Widely applied by auditors and enforcement authorities in the United States.
- Year issued
- 1999
- Issuing body
- US Securities and Exchange Commission
- Core point
- Five-percent quantitative threshold is not a safe harbour
- Adds
- Qualitative factors can make a small misstatement material
- Jurisdiction
- United States
Common questions
Why did the SEC feel a need to issue SAB 99 rather than let the five-percent rule of thumb stand?+
Companies and auditors had been treating a misstatement below roughly five percent of net income as automatically immaterial and therefore not worth correcting, and the SEC wanted to close that loophole because a small misstatement can still mislead investors depending on its nature and context.
What kind of qualitative factor can make a numerically tiny misstatement material under SAB 99?+
Examples include a misstatement that turns a loss into a profit, one that affects whether a company meets analyst expectations or a loan covenant, or one that conceals an illegal payment, since these change how a reasonable investor would view the company regardless of the dollar amount involved.
Is SAB 99 binding law, and does it apply outside the United States?+
SAB 99 is SEC interpretive guidance rather than a statute or regulation with independent legal force, but auditors and the SEC's own enforcement staff rely on it heavily in US materiality assessments; other jurisdictions apply their own accounting standards' materiality concepts, which are similar in spirit but not identical in wording.
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