The Materiality Box:
Why It's Important

 
With the number of GASB Statements now numbering into the 80s, it is good time to remind stakeholders that governments are not required to apply every pronouncement the Board issues for every transaction.

Though all GASB standards apply to all U.S. state and local governments, they may not need to be applied or implemented for every transaction if the effect of doing so would be immaterial. In other words, while all GASB standards apply, they may not be relevant for every transaction based on significance and materiality—that is where you draw the line.

This is why every GASB pronouncement contains a materiality box stating in bold type: “The provisions of this Statement need not be applied to immaterial items.”
One of the functions of the materiality box is to ease concerns about applying GASB pronouncements for transactions that relate to insignificant or “nickel-and-dime” amounts.

The concept of materiality is not addressed in GASB standards because of the necessity to apply professional judgment (there are a few Q&As in the Comprehensive Implementation Guide, however) and there are not any plans at present to add the topic to the agenda. The subject is addressed in audit literature and is a topic that governments will want discuss with their auditors as professional judgment and materiality play important roles in implementing any standards.

One of the functions of the materiality box is to ease concerns about applying GASB pronouncements for transactions that relate to insignificant or “nickel-and-dime” amounts. As a result, governments need not be concerned that they are going to have to analyze or consider every transaction, no matter how small.

For example, although significant transactions between a primary government (like a county) and a component unit (like the county school district) are required to be disclosed, they are not required to be disclosed if they involve insignificant amounts.
Rest assured that the accounting and financial reporting the Board has in mind relates only to significant (material) transactions and amounts.

Does a government have to capitalize a $25 pencil sharpener and depreciate it over ten years? The answer is that GASB standards relate only to significant (material) amounts.

In the end, producing accounting and financial reporting standards that clearly communicate information about governments and governmental units that users need for making decisions is the GASB’s goal—and one that guides much of what we do. Rest assured that the accounting and financial reporting the Board has in mind relates only to significant (material) transactions and amounts. And that is why the materiality box is in every pronouncement we issue.