Name: Tran Van
Accounting 4022-Fall 2012
Homework 17
Due Date: November 7, 2012

Summary of SAB 108:
On September 13, 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.
The most two commonly methods used in practice to accumulate and quantify misstatements in current years which resulted from prior year misstatements are the “rollover” and “iron curtain” approaches: 1/ The rollover approach, quantifies the amount of errors originating from current-year income statement. This method ignores the effects of correcting the portion of the current-year balance sheet misstatement that originated in prior years. Thus, the errors on the balance sheet can significantly accumulate over time. 2/ The iron curtain approach, quantifies the cumulative amount of misstatement existing in the balance sheet at the end of the current year to determine materiality. This method ignores the effect of correction of prior year misstatements in the current year income statement. A misstatement in the current year income statement is not considered as an error.
The staff does not believe the exclusive reliance on either the rollover or iron curtain approach appropriately quantifies all misstatements that could be material to users of financial statements. They believe that registrants must quantify misstatements using both the rollover and iron curtain approaches and evaluate the error measured under each approach. If either method results in a material misstatement, the financial statements must be adjusted.
SAB 108 also provides guidance for correcting misstatements. If the adjustments results from the effect of prior year statements, those statements must be corrected.

Interaction of SAB 108 and SAB 99:

Topic 1M (SAB 99) notes that a materiality evaluation must be based on all relevant quantitative and qualitative factors. It provides guidance on how to consider those factors in evaluating whether a misstatement is material.

Topic 1N (SAB 108) addresses how to quantify misstatements, but does not alter the analysis required by Topic 1M.