Materiality definition || Materiality concept || What is Materiality?

 What is Materiality?

Materiality is an idea that characterizes why and how certain issues are significant for an organization or a business area. A material issue can significantly affect the monetary, financial, reputational, and legitimate parts of an organization, just as on the arrangement of inner and outer partners of that organization.

Materiality Concept: 

The auditor reports by the concept of materiality. He gives an opinion on whether the financial statements present fairly in all material respects the financial; position and performance of the entity.

Information is material if, based on the financial statements, it could influence the economic decisions of users should it be omitted or misstated.

For example, the shareholders of a company with assets of Rs. 1 million will not be interested if petty cash was miscounted with the result that the amount of petty cash is overstated by Rs.100. This is immaterial. However, they will be recoverable and should therefore have been interested if there are receivables in the statement of financial position of Rs.200,000 which are not, in fact, recoverable and which should therefore have been written off as a bad debt.

Applying the concept of materiality means that the auditor will not aim to examine every number in the financial statements. He will concentrate his efforts on the more significant items in the financial statements, either;

• because of their ( high ) value, or
• because there is a greater risk that they could be stated incorrectly.

Materiality ( definition ): 

As referenced at first, materiality is the idea that characterizes why and how certain issues are significant for an organization or a business area. A material issue can significantly affect the monetary, financial, reputational, and lawful parts of an organization, just as on the arrangement of inward and outer partners of that organization. 

Notwithstanding, various materiality definitions are relying upon the setting of utilization. Albeit not comprehensive, the beneath definitions give a viewpoint of materiality from key partners – controllers, guidelines setting bodies, and financial backers.