Accounting framework - convention of materiality, Financial Management

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Accounting Framework - Convention of Materiality

Materiality means relative significance. In other words whether a matter should be disclosed or not in the financial statements depend on its materiality. American Accounting Association (AAA) describes 'Materiality' as follows. An item should be regarded as material if there is a purpose to believe in which knowledge of it would influence the decision of informed investors. Within this regard, the accountant is vitally concerned along with the following two significant matters:

(a)  Materiality of information; and

(b)  Materiality of amounts

The materiality depends on the amount and the nature of the account. It should be remembered that this doctrine of materiality also refers to separate disclosure of data in the published financial statements.

 


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