Materiality
In accounting, materiality means whether a misstatement or omission would likely change the judgment of a reasonable user of the statements — judged on size and nature together, never a fixed percentage.
- Layer
- Lexicon
- Defined in
- Lexicon
- Components
- 3
Authority
This definition follows SEC SAB No. 99.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
The lessons that teach this
Accounting, 0 to 1 — a free course taught end to end on one month of one company, with the spreadsheet exercises to work it yourself.
- 07The trial balanceEvery account, netted onto one side, with both columns summed. It proves the arithmetic, and you need to know exactly how much it does not prove.10 min
- 13Closing the monthStatements are not the end. The close proves every balance against something outside the ledger, then locks the period so the numbers can't quietly change.13 min
Materiality, in use
Quoted from the 5 documents that use the word — what it does to an interface, in the spec's own sentence.
Encoding materiality is what separates a useful variance report from noise.
Materiality is assessed under both the rollover and iron-curtain approaches (SEC SAB No. 108), quantitatively and qualitatively (SAB No. 99).
Significance is a threshold on both magnitude and materiality (a 200% swing on $12 isn't news), and the threshold is configurable because materiality is a business judgment.
For founders
The same idea written for a founder: what it costs a startup that ignores it, and what to do in a real month.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- significance
- the 5% rule
Components that render this
The concept is not documentation-only. These are the components that name it in their specification, grouped and stated exactly as the catalog states them.
Also in Close
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
- Benford & round numbersTwo cheap tests over a pasted column. Neither proves anything; both tell you where to look.Tool
- Journal entry for a prepaid software subscriptionWhen an annual software subscription is paid up front, debit Prepaid software and credit Cash (or Accounts payable). Each month-end, debit Software expense and credit Prepaid software for the days of service used that month.Entry
- Journal entry for an inventory write-downWhen inventory's net realizable value falls below its cost, debit an inventory write-down expense (often within cost of goods sold) and credit Inventory for the difference.Entry
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.