“Not material”

January 12, 2004

How many times do these words appear in the typical 10-Q or 10-K? I have no idea, but my guess is a lot. But often, the numbers involving something the company and its accountants consider “not material” can really be pretty substantial. Take AT&T’s (T) disclosure in its amended Q it filed last week: two employees (whose fate the company did not disclose) “circumvented the internal controls process” which caused the company to understate $125 million in expenses in 2001 and 2002. In September 2003, after an internal review, the company caught the mistake and recorded the expense. It’s a fine line here: investors certainly don’t need to be buried in more information, but at the same time, it’s frustrating to see how much companies sweep under the rug by declaring it “not material”.

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