Definition

Materiality

Materiality is the threshold an auditor sets to judge whether a misstatement is large enough to change a reasonable user's decisions about a company. Auditors calculate it early, often as a percentage of profit, revenue, or assets, and then use it to plan how much evidence to gather and where to focus. An error below the threshold may be trivial; one above it can require correction before the auditor signs off. Materiality is a matter of judgment, not just arithmetic, because a small dollar amount can still matter if it hides fraud or flips a company from profit to loss.