FASB is seeking comments on its proposed amendments to the meaning of materiality: See the Conceptual Framework proposal and the Accounting Standards Update, with the former applicable to nongovernmental entities (GASB has its own framework) and the latter applicable to all entities. Also, see Journal of Accountancy editorial comments. Compare IAS 1 and IAS 8 (International Accounting Standards), which have divergent interpretations of materiality.
FASB refers to materiality as a legal concept as part of an overall strategy to reduce the disclosure of irrelevant and immaterial information, the disclosure of which functions to add to the cost of reporting entities and obfuscate genuine material issues and explanatory data without providing meaningful benefit to users of financial statements. In practice, materiality would be defined by the entity’s governance persons (e.g., audit committee), senior management (e.g., CFO, in-house counsel), and outside experts (e.g., disclosure counsel). These are the same groups presently overseeing the preparation and publication of financial reports to the SEC.
Generally, I find it difficult to argue against the position taken by the FASB. Specifically, I am waiting for FASB to pronounce also that fraud is a legal concept, referring the opining on this concept to legal practitioners. Also, so many decisions relevant to the interpretation and application of generally accepted accounting principles (GAAP) depend on understanding commitments and contingencies and rights and obligations – a skill set more properly within the domain of legal practitioners and not accountants. For example, how are accountants educated and trained in contract interpretation? How are accountants educated and trained in risk management; should this practice be referred to actuaries and insurance professionals (I formerly practiced as a risk manager and insurance professional)?
The intent of this post is not to downplay the usefulness of accountants (I formerly practiced as a CPA) and to promote the usefulness of attorneys (I formerly practiced as an attorney) but to note that these practices overlap significantly. I fear that Humpty Dumpty may experience a renaissance.