Q. Misstatement of accounting information?

The FASB describes materiality as the magnitude of an omission or misstatement of accounting information that in the light of surrounding circumstances makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement. The phrase magnitude in this definition suggests that the materiality of an item may be assessed by looking at its relative size. A USD 10000 fault in an expense in a company with earnings of USD 30000 is material. The similar error in a company earning USD 30000000 may not be material.

Materiality involves in excess of the relative dollar amounts. Frequently the nature of the item makes it material. For instance it may be quite significant to know that a company is paying bribes or making illegal political contributions even if the dollar amounts of such items are relatively small.