Definition & Concept of Materiality

Definition & Concept of Materiality

Materiality = the size or nature of an error/misstatement that could influence the decisions of users of financial statements.

Simple idea:

If an error is big enough or important enough that it might change what a user decides → it is material.

Examples:

• RM 1,000 error for a big listed company → probably not material.
• RM 1,000 error for a small business with RM 5,000 profit → may be material.
• A small error but related to fraud → still material (because of nature).

Key points:

• Materiality is about “does it matter?”
• It is a matter of professional judgment.
• It is used when planning, performing, and evaluating the audit.