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September 30, 2023

Accounting News Roundup: IASB Tackles Materiality; $2 Bill’s Fair Value; Remembering the Iowa Pumpkin Tax | 10.29.15

International Accounting Regulator Offers New Guidance on Materiality [CFOJ]
The IASB released staff guidance yesterday that will "help company management determine whether information is material." You see, there's confusion out there as to what's actually material:

The draft guidance, in the form of a draft Practice Statement, has been developed in response to concerns that management are often uncertain about how to apply the concept of materiality and therefore use the disclosure requirements in the Standards as a checklist. This can result in excessive disclosure of immaterial information that can obscure useful information and also make financial statements cluttered and less understandable. It can also lead to useful information being left out.

Here's the IFRS definition of materiality:

Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature and magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report.

The draft goes on to discuss the pervasiveness of materiality, management "judgement," users of financial statements, their decisions, their characteristics, on and on. And I suppose these are things you have to think about when you're talking about the concept of materiality. If you like waxing philosophical about these sorts of things, you'll probably want to read the whole draft.     

Accounting class lesson on $2 bill leads to silver screen [MIT]
Speaking of waxing philosophical, what is a $2 bill from 1976 worth? Christopher Noe, a senior lecturer in accounting at MIT uses his to teach students about fair value. This leads to "emotional" discussions that go sorta like this:

Typically, a student might answer — correctly — that the bill is worth $2. Noe will agree, but points out that his 1976 bill is nearly 40 years old.

“By this time [in class], someone has looked it up on eBay, and will tell me that it’s worth about $8 as a collectible,” Noe says. “You can use the $2 value or the purported $8 value, but what’s more appropriate?”

There's also a documentary about the $2 bill that Noe was involved in, has a 50/50 shot of being interesting.

The Tiny Pharmacy at the Center of Valeant's Money Mystery [Bloomberg]
Speaking of materiality, those tiny pharmacies that Valeant says wasn't material to its business that ended up being material to its business all started with R&O Pharmacy:

Less than a year ago, 64-year-old pharmacist Russell Reitz agreed to sell his business there to a Delaware-registered company for $350,000. R&O soon became the victim of widespread fraud, Reitz’s lawyer alleged in documents filed in a billing suit against him in state court in California.

Even before the sale agreement was executed, other pharmacies began using an R&O identification number to bill for prescriptions that R&O hadn’t filled, sometimes for drugs the store didn’t stock, according to the court documents. Reitz got requests to hand over the money, and personal visits — not only from the one-man company buying R&O, but also from representatives of a firm called Philidor RX Services, whose links to the buyer Reitz struggled to understand.

It's hard to argue that there wasn't something fishy going on. Of course, R&O ended up suing Valeant and everything fell apart from there.

In other news:

  • Republicans Want to Impeach IRS Commissioner Koskinen [WSJ]
  • PwC acquired a "start-up which provides a forensic data search platform used to discover fraud and for compliance screening." [Accountancy Age]
  • Remembering the Iowa pumpkin tax. [Tax Foundation]
  • Hey, at least you don't work at Deutsche Bank. [CNBC]
  • Runaway blimp. [Quartz]

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