Comparing Auditors’ and Users’ Materiality Judgments

Materiality is a ubiquitous concept in accounting and auditing. Accounting and disclosure rules, with few exceptions, are bounded by materiality, meaning that if a matter is immaterial, it is often exempted from the accounting rules. In respect to audits, the auditors’ opinion speaks to whether financial statements are presented fairly in all “material” respects in accordance with an accounting framework. The SEC indicates that a matter is material if there is a “substantial likelihood that a reasonable person would consider it important (SAB No. 99).” Therefore, materiality is fundamentally user-defined, meaning that auditors and accountants have the unenviable task of … Read more