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I think that's an auditing process. You audit a company's financials to determine if its reported correctly. Depending on the variance of what they reported and what it exactly is, you determine if the difference is "material", or significant enough to report that its inaccurate.

For example, if I reported my phone expense to be $60 for the month and an auditor found out the bill to be $62.41, then that would be immaterial since $2.41 is not enough to show financial risk and investor's won't care since we're close enough.

If I forget to include a new building I purchased in the financials, then that would certainly be material.

2007-10-06 06:24:06 · answer #1 · answered by Andy 3 · 0 0

Here is an extract from the Framework to the IAS

Materiality

25. The relevance of information is affected by its nature and materiality. In some cases, the nature of information alone is sufficient to determine its relevance. For example, the reporting of a new segment may affect the assessment of the risks and opportunities facing the enterprise irrespective of the materiality of the results achieved by the new segment in the reporting period. In other cases, both the nature and materiality are important, for example, the amounts of inventories held in each of the main categories that are appropriate to the business.

26. Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful.

2007-10-06 16:03:57 · answer #2 · answered by Sandy 7 · 0 0

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