In auditing, what does 'materiality' refer to?

Materiality in auditing pertains to the significance of financial information in conceiving the user’s perspective. It involves the importance of information presented in financial statements that could influence the decisions of those who rely on them, such as investors, creditors, and other stakeholders.

When determining materiality, auditors assess whether the omission or misstatement of financial information could affect the economic decisions of users. A higher threshold of materiality means that only significant discrepancies need to be reported, while less significant errors may be overlooked, reducing the audit costs and focusing attention on information that truly impacts decision-making.

This concept forms the basis for guiding the auditor's judgment and the overall audit strategy. Understanding materiality helps auditors to prioritize their resources effectively and provides a framework for evaluating the sufficiency of evidence gathered. It's a fundamental aspect of auditing standards that ensures user needs are met without overwhelming them with irrelevant details.