Question

Define the concept of materiality.

How does one determine what materiality is and how is it applied to an audit?

Answer 1

Materiality is the concept related to accounting and auditing which focuses the importance of misstatements, amount or any transcation. Misstatement or any omission can be considered material if its influence the decisions of the users of those financial statement.

In todays business world, the users of the financial statement have increased, so now the materiality has more scope and auditor need to considered all points before coming into conclusion.

Materiality can be both qualitative and quantatative. While at the planning stage its considered if wha is materiality is defined which helps in complete audit Process.

Materiality is determined based on the circumstances, a misstatement can be material for one company and same kind of misstatement may be immaterial for another company.

Purpose of the audit, judgements and circumstances helps whether certain transcation, amount, ommission etc is material or not.