Materiality

Not every small detail matters. A company with revenue of 500 million does not need to show a separate line for a 200 stationery purchase, and a minor error of that size would not change anyone's view of the business. Information is material if it is large enough, or important enough, to affect decisions.

Materiality depends on size and on nature. Accountants and auditors often use rough guidelines, such as a small percentage of profit, revenue or total assets, to judge size. But some items are material regardless of amount, such as payments to company directors, signs of fraud or a breach of loan terms.

Materiality helps keep financial statements useful. Without it, reports would be cluttered with trivial details that hide the important figures.

It also guides auditors. They focus their checks on areas where errors could be material, rather than testing every transaction. A material misstatement is one large enough that correcting it would change how a reasonable reader understands the company.