Materiality is always one of the most complex judgments we make. You can check out some background in these earlier posts about materiality considerations, SAB 99 and related issues.
As a year-end thought, here is a March 2018 comment about materiality judgments:
Note 1 – Organization and Summary of Significant Accounting Policies, page 43
- We note that in fiscal 2017 you revised your March 31, 2016 balance sheet for an error in the historical carrying value of inventory which you believe was not material to any previously issued consolidated financial statements. However, we note that this $1.5 million overstatement of inventory appears quantitatively significant in comparison to the $0.2 million pre-tax loss of fiscal 2016 and $2.2 million pre-tax tax loss of fiscal 2015.
In order to assist us in understanding your disclosure, please provide us with the following additional information:
- tell us the specific nature of these errors, how long inventory balances were not accurately costed, when and how you discovered them.
- provide the impact of the error on fiscal 2016 and 2015 and your analysis regarding how you determined these errors were both quantitatively and qualitatively immaterial to previously reported periods including quarterly financial statements. Please refer to SAB Topics 1.M. and 1.N.
The company’s response, which is detailed and lengthy, is here.
The next step was the SEC’s closing letter, with no further comments.
As always, your thoughts and comments are welcome!