materiality

materiality
The importance and relevance of an item in an auditing context. The concept of materiality permeates auditing processes, and it has been described as "multidimensional" (Lee, 1994, 178): It affects *audit planning, the selection of *audit evidence, the testing of *samples, and the preparation of *audit reports. Materiality is often judged on the basis of its potential impact on an activity, individual, or organization. In the context of external auditing, for example, the potential impact of the omission or *misstatement of an item on a reader’s interpretation of published *financial statements drives materiality considerations. Some forms of materiality may be assessed *quantitatively and this approach is often taken by external auditors. For example, the materiality of a *balance sheet item may be calculated in relation to a defined percentage of *net assets, or the materiality of an *income statement item may be calculated in relation to a defined percentage of sales or *net income. An auditor may only review items that fall within such defined materiality categories. However, some items may be material whatever their size. A *bribe, for example, may only be small in relation to balance sheet values, yet its intrinsic nature may make it material. Materiality therefore usually comprises a mixture of qualitative and quantitative considerations.

Auditor's dictionary. 2014.

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