magnitude of an omission or misstatement of accounting data that misleads financial statement readers. Materiality is judged both by relative amount and by the nature of the item. For example, even a small theft by the president of a company is material. Unfortunately, the Financial Accounting Standards Board (FASB)has no specific criteria as to what is or is not material. If an item is material, it should be disclosed in the body of the financial statements or footnotes. Some CPA firms use a 5% test for materiality. The SEC in Accounting Series Release No. 159 provides that an item is material if it changed by 10% or more relative to the prior year.
in accounting reports, concept that only important disclosures are required. A CPA performing an audit for a phone company does not need to count the last dime deposited in a pay phone just before the fiscal year ends, because of lack of materiality.
characteristic of an event or information that is sufficiently important (or material) to have a large impact on a company's stock price. For example, if a company was about to report its earnings, or make a takeover bid for another company, that would be considered material information. Material information is information the reasonable investor needs to make an informed decision about an investment.
