Home > Accounting Glossary > Materiality
Materiality: Definition and Meaning
Definition
Materiality is the significance of an item or error such that it could influence the decisions of a reasonable user of financial statements.
Why It Matters
Materiality involves professional judgment. It is not determined by a single percentage or dollar threshold. Both quantitative and qualitative factors may matter, including the nature of the item, the entity’s circumstances, contractual requirements, regulatory considerations, and the needs of financial-statement users.
Materiality is an important concept in audit planning, financial-statement preparation, error evaluation, and disclosure decisions.
Example
A small error might not affect decisions at a large company but could be significant for a smaller company with tight lender covenants.
Related Terms
TYS provides accounting, tax, construction-accounting, and business-advisory support to closely held businesses, contractors, individuals, and families. With offices in Fairport, New York, and Walnut Creek, California, TYS helps clients better understand their financial information and prepare for important decisions.
Have a question about Materiality or your business’s financial reporting?
Contact TYSThe information on this page is provided for general educational purposes only and is not accounting, tax, legal, financial, insurance, bonding, or business advice. Consult qualified professionals regarding your particular circumstances.
Back to the Accounting Glossary →