Materiality concepts clarified for federal entities

By Ken Tysiac

The concept of materiality was defined more precisely for federal government entities in an accounting standard issued Monday by the Federal Accounting Standards Advisory Board.

The guidance is included in Statement of Federal Financial Accounting Concepts (SFFAC) 9, Materiality: Amending Statement of Federal Financial Accounting Concepts (SFFAC) 1, Objectives of Federal Financial Reporting, and SFFAC 3, Management's Discussion and Analysis.

Through amendments to SFFAC 1 and SFFAC 3, the new standard clarifies the implementation of materiality concepts in the issuance of federal financial statements. Although SFFAS 9 doesn't make substantive changes to underlying materiality concepts, it clarifies the materiality concepts by:

  • Discussing the needs of reasonable users;
  • Clarifying the concept of misstatement; and
  • Identifying specific federal environment considerations.

The standard also is designed to enhance preparers' and auditors' understanding of the materiality concepts in federal financial reporting.

"This statement is intended to clarify implementation of materiality concepts in the issuance of federal financial statements and to provide clearer materiality guidance to improve the understanding and comprehension of federal financial reports by financial statement users," FASAB Chairman George Scott said in a news release. "Materiality is defined in terms of the likelihood that a misstatement, including the omission of information, could reasonably be expected to affect the judgment of a reasonable user relying on the information."

Ken Tysiac ( is the JofA's editorial director.

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