Question

Go to the FASB website and access the FASB Concepts Statements and use the IASB website to respond to the following items.

• The concepts statements provide several examples in which specific quantitative materiality guidelines are provided to firms. Identity at least two of these examples. Do you think the materiality guidelines should be quantified? Why or why not?

Answer 1

FASB: FASB refers to the FInancial Accounting Standards Board is an non profit organisation which is responsible to establish Accounting and FInancila reporting Standards for the firms and Non profit organisations in USA.

IASB: FASB refers to the International Accounting Standards Board is an non profit organisation which is responsible to establish Accounting and FInancila reporting Standards for the firms and Non profit organisations applicable internationally.

IASB has frmaed many guidelines for the firm regqrding the Qualitative materiality.

The organisation is required to disclose which ismaterial for the decision making of the users of the financial statements both Quantitively and Qualitatively.

Some of the examples are

1) 5% of Net income

2) 2 - 3% of EBITDA

3) 5% of Earnings Before Tax (EBT)

4) 0.5 - 1 % of Total Revenue.

If you have found any mistatement say the liability account has been understated 10 years ago. It cannot be included in the current financial statement because it effects the original vales of the statement. It should be done retrospectively for the true and fair value of the current year.

Yes, the materiality guidelines should be quantified because then only the users of the financial statements will be aware of the exact amount of misstatement and can take the decisions based upon that amount.