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Professional Standards of Accuracy

The Meaning of 'Material' and 'De Minimis'


Tax returns, as well as all financial information, must be presented in a way which is not materially misleading. Useful accounting information is subject to the constraint of the relative cost benefit of that information. Information should be provided if its benefit exceeds its cost. However, pinpoint accuracy 'to the penny' is an unrealistic and naive concept. We live in an imperfect world. Certain numbers on a correct and accurate tax return may be immaterial, de minimis, estimates, reasonable, and certainly are not 'cut and dried.'


The American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB) use the term 'materiality' within Generally Accepted Accounting Principles (GAAP) as a concept relating to accounting information. Material information is that whose absence makes the financial statements misleading. Conversely, immaterial information is that whose absence does not make the financial statements misleading. Materiality requires judgment. It is dependent upon the relative size of an item, the precision with which the item cam be estimated, and the nature of the item. The individual accountant must exercise professional judgment in evaluating information and concluding on its materiality.

De Minimis

The Internal Revenue Service (IRS) uses the term 'de minimis' within the Internal Revenue Code (IRC) as a concept relating to tax information. De minimis items are those with values so small that accounting for them would be impractical or unreasonable.


are properly used to value depreciation, amortization, bad debt reserve, non-cash charitable contributions, as well as other financial and tax items.


Tax court judges use the term 'reasonable' in written decisions to decide how much of a tax deduction to allow a taxpayer, in the absence of all documentation. Of course, taxpayers should plan to avoid tax court, audit appeals and audits, by maintaining accurate and detailed tax records.

'Cut and dried?'

Do you think the fields of medicine or law are "cut and dried"? There are various tax deductions, alternative tax strategies, constantly changing laws and regulations, and new court cases with different interpretations and understandings. With the complexity of the tax system today, nothing is "Cut and Dried"!

The Point

The skillful accountant knows how and when to exercise professional judgment in these areas.

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