Materiality Theory

Materiality Theory is a principle used mainly in finance and auditing that helps determine what information is important enough to influence decision-making. It suggests that only data or issues that could impact a person's or organization’s decisions need to be disclosed or scrutinized. In essence, materiality acts as a threshold: if an item’s omission or misstatement would likely affect the judgment of someone relying on that information, it is considered material. This focus ensures that resources are concentrated on significant factors, improving clarity and efficiency in reporting and decision processes.