Discussant's response to toward standards for materiality(?);

              Discussant's Response to
Toward Standards for Materiality(?)
Sam M. Woolsey
University of Houston
Mr. Holmes has prepared a very interesting and thought provoking paper on this elusive problem of materiality. As discussant it is my intention to rein­force
and stress the importance of many of his points as they affect the accounting profession. A few of my own concepts on how to handle the problem will be given, either as a modification or an addition to his other comments and conclusions.
Various Meanings of Materiality
Mr. Holmes' references to legal opinions and interpretations given by regulatory bodies have brought out different shades of meaning associated with the word "material." Materiality, as it is used in the narrow sense, relates to the correct recording and reporting of accounting data. Mr. Holmes points out that for a statement to be considered "fair" it must be free of "significant dis­tortion."
This concept says that if a statement contains significant accounting errors, it should be corrected regardless of the surrounding circumstances and without the necessity of being concerned whether or not the error is large enough to influence the action of the "average prudent investor."
Materiality, in its broadest sense, is related to whether or not the item in question (e.g., the existence of an error) will likely influence the thoughts and actions of the reader when considered under the surrounding circumstances. There may or may not be significant distortion.
I believe that the profession should recognize the difference between the two meanings of materiality (significant distortion and materiality) and that, as Mr. Holmes suggests, the terms "significant distortion factor" and "materiality factor" could be used to identify them. His suggested rule of "lower of standard distortion factor or materiality factor" may become generally accepted by the profession.
Setting Standards
In response to the problem of whether the profession can set standards for judging significant distortion and/or materiality, Mr. Holmes implies that it might be possible to establish standards for the former. But he says, "It may be said that any decision by an accountant as to materiality in a particular case is always correct short of a court of law." It is hard to believe that a materiality decision is correct just because it has not been challenged and settled in court. If so, how do we explain the situation where one qualified accountant, after
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