Industry: Accounting
Sub-Industry: Auditing
Level: Expert
Materiality (Accounting Definition)
Formal Definition
The threshold above which missing or incorrect information in financial statements is considered to have an impact on the decision-maker.
Contextual Application
Auditors use materiality to determine the scope of their review; it is both a quantitative and qualitative measure based on specific organizational context.
Example in Context
"The $5,000 error was deemed immaterial given the company's $500 million annual revenue."
Common Misuse
Misunderstood as a fixed percentage; materiality is a professional judgment that varies depending on the size and nature of the business.
Related Terminology
Knowledge Check
When are expenses recorded in accrual accounting?
Which method is preferred for complex businesses?