If investor reaction to a quantitatively small misstatement significantly affects the share price of a stock, then the misstatement is material. 99 Highlights Issued by the SEC in August 1999, SAB no. 99 provides examples of acceptable and unacceptable uses of materiality. Insignificant misstatements resulting from the normal course of business do not require restatement of a registrant's books. Not Acceptable Exclusive reliance on quantitative benchmarks in assessing materiality is not appropriate.
Intentional errors based on materiality are always wrong.
Intentional misstatements, even if immaterial, violate federal law. Misstatements created for the purpose of managing earnings are unacceptable, regardless of materiality. Quantitatively small misstatements are material under certain circumstances and must be evaluated according to certain qualitative factors. In periods of strong earnings, Grace would report earnings that met the unit's growth target and would hide what wasn't needed in a reserve account. The company's auditor identified these reserve profits in a 1991 memo.