Materiality in auditing

Materiality is a concept in auditing that attempts to set a dollar value guideline for the scope of evidence testing at the substantive level, analytical procedures, and to a lesser extent, controls testing.

According to Krupo:

“Materiality is the smallest misstatement of a company’s finances that would cause a person to change how they value the entity in question.”

That sums it up nicely. It’s really based on what’s important to someone with a stake in the financial health of the entity.

For audits of for-profit companies, materiality is usually based on a percentage of revenues or income (pre-tax). 1-2% of revenues or 5-10% of net income is the benchmark. In non-profit organizations, materiality is usually 1-2% of expenditures.

Amazon’s 1-click patent to be reexamined

It was recently announced that Amazon.com‘s 1-click payment patent will be reconsidered by the USPTO, but what is so interesting is that it was not filed by one of Amazon.com’s business competitors or by an NPO like the Electronic Frontier Foundation which protects online freedom, but from a New Zealand actor who paid the reexamination fee with money raised through his blog for the purpose.

In his words, this is about nothing more than payback for an annoyingly slow book delivery.

Pressure to decrease gas taxes is misguided

Inevitably when the price of gas rises, drivers cry foul and the call comes to governments to alleviate the pain, in the form of reducing taxes on gas.

However, the idea that governments should lower taxes on gas in response to globally increasing demand outstripping an increasingly unstable supply is a misguided approach that treats the symptom but ignores the cause of the problem: our reliance on oil.

Technologies like hybrids and modern diesels will help us reduce our reliance on oil for our personal transportation, and should be embraced by the public. I drive a Volkswagen TDI and it gets amazing mileage. I average between 900 and 1,000 kilometres per 55L tank. Generally it costs about $45 at today’s prices to fill up.

Nortel completes latest restatement

Nortel released their 2005 financials Friday and completed more restatements of prior years’ results. The restatements related to revenue recognition and decreased revenues and net income because the revenue should’ve been booked in different periods.

Maybe this will mark a turning point for the Canadian communications equipment company and they can retain (or regain) their position as a market leader. The fact they released these disappointing results on a Friday afternoon is of course a little trick to reduce their media exposure. Not everyone is fooled!