The Impact of Materiality: Accounting's Best Kept Secret

Asian Academy of Management Journal of Accounting and Finance, 1: 1-31 (2005)

24 Pages Posted: 1 May 2013

See all articles by Niamh M. Brennan

Niamh M. Brennan

University College Dublin

Sidney J. Gray

University of Sydney Business School

Date Written: 2005

Abstract

This paper comprises a review of the literature on materiality in accounting. The paper starts by examining the context in which materiality is relevant, and the problems arising from applying the concept in practice. Definitions of materiality from legal, accounting and stock exchange sources are compared. The relevance of materiality to various accounting situations is discussed. Methods of calculating quantitative thresholds are described and illustrated. Prior research is reviewed, focussing on materiality thresholds, and on the materiality judgments of auditors, preparers and financial statement users. The paper concludes with some suggestions for future research and for policy makers concerning this best kept accounting secret.

Keywords: Materiality definitions, Materiality thresholds, Materiality rules of thumb

JEL Classification: M41

Suggested Citation

Brennan, Niamh M. and Gray, Sidney J., The Impact of Materiality: Accounting's Best Kept Secret (2005). Asian Academy of Management Journal of Accounting and Finance, 1: 1-31 (2005). Available at SSRN: https://ssrn.com/abstract=2257485

Niamh M. Brennan (Contact Author)

University College Dublin ( email )

Sidney J. Gray

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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