Materiality

Materiality, a cornerstone of accounting and auditing, is based on the idea that if information is material, its omission or misstatement could impact users’ decisions. Essentially, materiality involves gauging the importance of information in financial statements — information that carries a substantial likelihood of influencing the investment decisions of reasonable investors.

This assessment of materiality is context-dependent, considering factors like the evaluated item’s size, nature, and context. It entails pinpointing the issues most pertinent to a company’s operations and stakeholders, and assessing their significance. This process is especially vital in ESG and sustainability reporting, enabling companies to direct their focus towards the most critical aspects of sustainability endeavors.

Materiality encompasses various approaches, including financial materiality, double materiality, and dynamic materiality (see definitions) each offering unique perspectives on the significance of information.