Apr 24, 2026 Matthew Hung

Audit Materiality – What is it and why does it matter?

Materiality is one of the most important concepts in accounting, auditing, and financial reporting.  At its simplest, materiality is about significance: which information matters to users of financial statements, and what can reasonably be ignored without affecting their decisions.

In every organisation—large, small, commercial, government, or community-based—stakeholders use financial information to make decisions. These stakeholders might be investors, lenders, regulators, board members, customers, or the public.  Materiality acts as a filter to ensure those users receive clear, relevant information rather than being overwhelmed by insignificant detail.

Materiality asks one big question:

Would a reasonable person’s decision change if this information were misstated or missing?

If the answer is yes, then the information is material.

Materiality can take the form of quantitative thresholds (such as a percentage of revenue, profit, or expenses) or qualitative considerations (such as compliance breaches, fraud indicators, or transactions with reputational risk). This blend of size and context is what gives materiality its power—and its complexity. Even a small dollar amount can be material if it touches on sensitive areas like related‑party transactions, or regulatory requirements.

Material errors and material disclosures need to be corrected for an unqualified auditor report, but immaterial errors do not need to be fixed.

Immaterial disclosures do not and should not be made in the financial statements where they result in financial statements that are harder to read and understand.  This is an aspect of materiality that is often overlooked but something that the accounting authorities are concerned about.

If you are on the board of an organisation, you have responsibility for the content of the financial statements, even if you engage someone else to prepare them.  So, review your financial statements critically and think about what detail is unnecessary.  Your auditors may make suggestions about things that are clearly immaterial and could be omitted, but they should also welcome any discussion about potentially unnecessary disclosures.