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judgment of a reasonable person relying upon the report would have been
changed or influenced by the inclusion or correction of the item.
QC11A. A decision not to disclose certain information or recognize an economic
phenomenon may be made, for example, because the amounts involved are too
small to make a difference to an investor or other decision maker (they are
immaterial). However, magnitude by itself, without regard to the nature of the item
and
the circumstances in which the judgment has to be made, generally is not a
sufficient basis for a materiality judgment.
QC11B. No general standards of materiality could be formulated to take into
account all the considerations that enter into judgments made by an experienced,
reasonable provider of financial information. That is because materiality judgments
can properly be made only by those that understand the reporting entity’s pertinent
facts and circumstances. Whenever an authoritative body imposes materiality
rules or standards, it is substituting generalized collective judgments for specific
individual judgments, and there is no reason to suppose that the collective
judgments always are superior.
Faithful Representation
QC12. Financial reports represent economic phenomena in words and
numbers. To be useful, financial information not only must represent relevant
phenomena, but it also must faithfully represent the phenomena that it purports to
represent. To be a perfectly faithful representation, a depiction would have three
characteristics. It would be complete, neutral, and free from error. Of course,
perfection is seldom, if ever, achievable. The Board’s objective is to maximize
those qualities to the extent possible.
QC13. A complete depiction includes all information necessary for a user to
understand the phenomenon being depicted, including all necessary descriptions
and explanations. For example, a complete depiction of a group of assets would
include, at a minimum, a description of the nature of the assets in the group, a
numerical depiction of all of the assets in the group, and a description of what the
numerical depiction represents (for example, original cost, adjusted cost, or fair
value). For some items, a complete depiction also may entail explanations of
significant facts about the quality and nature of the items, factors and
circumstances that might affect their quality and nature, and the process used to
determine the numerical depiction.
QC14. A neutral depiction is without bias in the selection or presentation of
financial information. A neutral depiction is not slanted, weighted, emphasized,
deemphasized, or otherwise manipulated to increase the probability that financial
information will be received favorably or unfavorably by users. Neutral information
does not mean information with no purpose or no influence on behavior. On the
contrary, relevant financial information is, by definition, capable of making a
difference in users’ decisions.