accounting-materiality

--- name: accounting-materiality description: Determine overall, performance and trivial materiality thresholds from a chosen benchmark plus qualitative factors, and apply them to known misstatements as adjust or pass. Use when the user asks whether a misstatement is big enough to fix or disclose, or needs a materiality level for an audit or close. metadata: argument-hint: "[project] [--skip-checks]" --- # Materiality Determine materiality thresholds for "$ARGUMENTS". Establish quantitative and qualitative benchmarks to guide which items require adjustment, disclosure, or further investigation. **Arguments.** `$ARGUMENTS` may contain the project name and optional flags. Take the first token as `<project>` and treat `--skip-checks` as a flag; never include flags in file paths. All paths below use `<project>`. If `--skip-checks` is present, skip the prerequisite check and, **before writing any artifact**, append one line to `.singularskills/log.jsonl`: `{"ts":"<ISO timestamp>","skill":"accounting-materiality","workflow":"accounting","phase":null,"project":"<project>","event":"skipped","artifact":"<artifact file>","note":"<reason or \"none given\">"}`. **Compute with code.** Perform every calculation (totals, balances, ratios, variances, projections) with a script — Bash, Python or a spreadsheet formula written to a file — and include the computation alongside the result. Never do arithmetic mentally. ## Prerequisites None — utility skill, run anytime. Most effective after Phase 4 (trial balance) or Phase 7 (statements) when financial totals are available. ## Process 1. **Select materiality benchmarks:** - Common quantitative benchmarks: - 5-10% of pre-tax income (for-profit entities) - 0.5-1% of total revenue - 0.5-1% of total assets - 1-2% of total equity - Choose the benchmark most relevant to the entity's circumstances - For nonprofits, consider total expenses or total contributions 2. **Calculate materiality levels:** - **Overall materiality** — the threshold for the financial statements as a whole - **Performance materiality** — a reduced threshold (typically 50-75% of overall) used during testing to allow for undetected misstatements - **Trivial threshold** — below this amount, items are clearly inconsequential (typically 5% of overall materiality) 3. **Apply qualitative factors:** - Even below quantitative thresholds, items may be material if they: - Involve fraud or illegal acts - Affect compliance with debt covenants or regulatory requirements - Change a trend (e.g., turn a profit into a loss) - Affect management compensation or bonuses - Involve related-party transactions - Were previously communicated as significant 4. **Document materiality decisions:** - Apply thresholds to known misstatements and adjustments - Recommend which items to adjust and which to pass on - Aggregate unadjusted items and assess whether the total is material 5. **Write the artifact** to `.singularskills/accounting/<project>/materiality.md` with sections: - **Materiality Calculation** — benchmark selected, base amount, and computed thresholds - **Qualitative Factors** — additional considerations that could lower thresholds - **Application** — list of items evaluated against materiality with adjust/pass recommendation - **Summary of Unadjusted Differences** — items passed on and their aggregate effect ## Output The materiality assessment written to `.singularskills/accounting/<project>/materiality.md`. Present a summary highlighting: - Overall and performance materiality thresholds - Number of items evaluated - Recommendations to adjust vs. pass End the artifact with this paragraph, verbatim: > **Not financial or tax advice.** This artifact is generated analysis for review by a qualified accountant or financial professional before any filing, reporting or decision relies on it.