Please ensure Javascript is enabled for purposes of website accessibility
December 5, 2022

Accounting News Roundup: Bickering About Materiality and Suing Over a Boring Job | 05.06.16

Ed. note: I'm presenting at the Association for Accounting Marketing's Summit this morning and then traveling the rest of the day. Regular programming resumes Monday.

Materiality

Awhile back, the FASB wanted to revisit the concept of materiality by following the legal definition established by the Supreme Court. It did not go over so well. Gretchen Morgenson wrote that the FASB had "lobbed a miniature Molotov cocktail into the usually staid world of audit standards."

Now that the Molotov cocktail has burned out, this fun CFO article gets some perspectives from people on the whole thing. Former FASB Chairman Robert Herz, who put the issue on the Board's agenda, now knowing how people would react, probably wouldn't have gone there:

“My opinion is, with the benefit of hindsight, I probably wouldn’t have touched this raw nerve,” Herz said. “I think that they think they were just clarifying something, but I don’t know if it was such a burning need.”

One of the more touchy aspects of FASB's proposal was that materiality for accounting was going to have a legal definition. People did not want to go there:

Stanley Siegel, an emeritus professor at NYU Law School, blasted the notion of introducing legal definitions into the U.S. accounting system. “Materiality has meanings in several different contexts … it doesn’t follow that what’s material for a criminal case is material for accounting,” he contended. “We’re in a worrisome area when we attempt to apply one standard in another setting.”

Plus, imagine the bickering!

[Siegel], who teaches accounting to lawyers, had a bit of fun with the legal profession’s math abilities. “These guys have enough difficulty figuring out that six and seven is really 13, and they’re willing to argue with me that it’s 15 or 11, depending on the circumstances. I’m just wondering if it’s there that we want to put things.”

For entertainment value, I think that's exactly where we'd want to put things. From a practical viewpoint, I can see the problem.

Accountants behaving badly

Okay, not an accountant per se, but a former CFO, Joseph Apuzzo, will not be a a public company CFO again after a judge entered a permanent officer and director bar against him. The case goes all the way back to 2000 when Apuzzo aided and abetted "a fraudulent accounting scheme involving two sale-leaseback transactions." Why such a harsh penalty? 

[T]he Court found that the "egregiousness of Apuzzo's violation, his role or position when he engaged in the fraud, his high degree of scienter, and the likelihood that misconduct will recur" merited a permanent bar. The Court found that Apuzzo's "inability to recognize the wrongfulness of the egregious conduct in which he engaged and his lack of candor even when under oath" indicated that he "is likely to fail to live up to the trust with which" officers and directors of public companies are endowed.

Seems fair.

Previously, on Going Concern…

From Open Items, someone's thinks you're all getting soft.

In other news:

Get the Accounting News Roundup in your inbox every weekday by signing up here.

Latest Accounting Jobs--Apply Now:

Have something to add to this story? Give us a shout by email, Twitter, or text/call the tipline at 202-505-8885. As always, all tips are anonymous.

Related articles

a dog wearing VR

Monday Morning Accounting News Brief: Deloitte on Microtransactions; More EY Split Roadblocks; Have You Become Irritable? | 11.28.22

Happy Monday! Here’s some stuff that’s going on. Several US audit firms told the Financial Times that they had elevated some or all of their crypto-related clients to the status of “high risk”, triggering a more thorough audit that will take longer and lead to higher bills; some clients could ultimately be dropped altogether. KPMG […]

woman working on a laptop with a dog beside her

Monday Morning Accounting News Brief: The Leadership Void; KPMG Gets Fined (Again); PwC Ups Leave | 10.3.22

Deloitte launches Global Sustainability & Climate learning program that aims to enhance skills and capabilities of Deloitte people to help address a global societal challenge. Dubai’s financial regulator has provisionally fined KPMG and one of its former partners $2 million over the firm’s auditing of Abraaj, the emerging markets private equity group that collapsed in […]