What is meant by materiality in accounting?



Materiality is the amount of transaction or balance and the type of information in the financial information which can affect the decision of the user of financial statements if that amount is omitted or misstated.

 

definition of materiality in accounting

In other words the information in the financial statement is material if committing it or misstating it could influence decision that users make on the basis of financial information about the specific reporting entity.
An error which is too trivial to affect the user’s understanding of financial statement is referred to as immaterial.
There is no absolute measure of materiality that can be applied to all businesses. In other words there is no rule that say any item greater than  5% of profit must be material. Whether an item is material or not depend on its magnitude or its nature or both in context of specific circumstance of the business.

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