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materiality concept

Luckshmitha

can someone explain the materiality concept and how it applies to the treatment of capital and revenue expenditure.

Reply 1

tntn1010

Original post by Luckshmitha

can someone explain the materiality concept and how it applies to the treatment of capital and revenue expenditure.

Hope this helps, it's from my coursenotes :smile:

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Reply 2

Illusionary

Original post by judging

Hope this helps, it's from my coursenotes :smile:

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Just as a follow-up clarification to this, it's worth nothing that materiality has relevance in far wider circumstances than just the revenue/capital divide. The concept is relevant to any issue that could impact on the report (e.g., statutory financial statements) in question.

The quote currently on the Wikipedia entry for materiality is a good one here:

"Information is material if its omission or misstatement could influence the economic decision of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful."

Reply 3

Hedgeman49

Original post by judging

Hope this helps, it's from my coursenotes :smile:

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Why on earth are your notes in Comic Sans?! :|

Otherwise, in general and simple terms I think of materiality as being the level you set when deciding whether an error/quantity of something you're measuring is deemed significant or not. It is a very subjective thing, depending entirely on what you're measuring and the purposes of the measurement.