§ 01
| Company Type | Materiality Benchmark | Typical Threshold |
|---|---|---|
| Profitable | Pre-tax income | 3–5% |
| Unprofitable | Total assets or revenue | 0.5–1% |
| Financial institution | Total assets or equity | 0.5–1% |
§ 02
Materiality = Benchmark × Threshold %
§ 03
A restatement that changes earnings by 0.2% is noise. One that changes earnings by 15% is a crisis. But qualitative factors matter too — a $1M error that turns a profit into a loss, or that involves fraud, is material regardless of size.
§ 04
If a company with $200M in pre-tax income restates by $4M (2%), consider whether that would change your investment thesis. Compare that to a $30M restatement (15%).
§ 05
A company with $200M pre-tax income restates, reducing earnings by $4M (2%). Is this material?
§ 06
§ 07
A company's auditor identifies a $2M accounting error. The company's total revenue: $5B. Is this 'material'?
Five questions · AI feedback
Sit with the ideas.
A company with $200 million in pre-tax income restates its financials, reducing earnings by $4 million due to an inventory accounting error. Is this restatement material?
Why: