AICPA offers guidance on materiality in attestations

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The American Institute of CPAs released a discussion paper Wednesday explaining some of the challenges of determining materiality in an attestation engagement when the subject matter can’t be measured quantitatively.

The paper, developed by a working group of the AICPA’s Assurance Services Executive Committee, talks about some of the challenges encountered by accountants when they need to make professional judgements about materiality. Attestation engagements can involve different types of subjects, and not all of them can be numerically measured and evaluated. That includes sustainability programs, fair labor practices and employee education initiatives.

“In today’s world, stakeholders are placing great importance on information about an entity in addition to that which is traditionally provided in historical financial statements,” said the AICPA's chief auditor, Robert Dohrer, in a statement. “When providing assurance services, it’s important that practitioners understand what information will most significantly impact stakeholders’ decision-making process, which is central to a practitioner’s consideration of engagement materiality.”

The paper discusses ways in which practitioners can address materiality challenges and offers examples such as system and organization control examinations, examinations or reviews of sustainability information, and examinations or reviews of compliance with contractual or other requirements. The AICPA’s Assurance Services Executive Committee has been looking into these kinds of issues.

“A large part of ASEC’s mission is developing and promoting new services that CPAs can perform,” stated ASEC chairman Jim Burton, a partner at Top Six firm Grant Thornton. “Expanding a CPA’s role to address information presented in reports other than traditional historical financial statements is an important step and also enables CPAs to bring their expertise in providing independent and objective assurance to this growing marketplace. But we also have a responsibility to provide CPAs with the tools they need to perform these new services in a quality manner. Understanding how materiality is considered when performing these new engagements is critical, and this discussion paper opens a dialogue within the profession to address this issue.”

The AICPA is asking for comments about how stakeholders and practitioners consider “materiality” when it comes to subject matter that can’t quantitatively measured. It especially would like to hear from people with practical experience in such attestation engagements, including preparers of subject matter presentations, practitioners performing examinations or reviews on such presentations, investors and other users of such subject matter information, and regulators. They should submit feedback to Sherry Hazel at by Oct. 31, 2019.

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