The Materiality Concept

Since accounts preparation is not an exact science, the pursuit of excessive detail is not warranted when it would not affect anyone’s understanding of the accounts.  Detemining whether or not an item is material is a very subject exercies.  There is no absolute measure of materiality.  Generally, an amount less than 5% of net profit is not considered material.

However, there are exceptions to this.  Some items are regarded as particularly sensitive (such as directors remuneration of a limited company) and even a very small misstatement of these items would be regarded as a material error.

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