Materiality assessment depends on a number of factors:
Public vs. private company
Profitability of company
Users of financial statements and their expectations
Professional judgment
For for-profit businesses, the two most frequently used basis are:
1.A company has total revenues of 200,000,000 Rwf, expenses of 175,000,000 Rwf and net income of 25,000,000 Rwf. The accountant forgets to record a taxi expense of 5,000 Rwf.
Do you think this amount is material? Why or why not?
2.A company has total assets of 750,000,000 Rwf. The company purchases a new building for 30,000,000 Rwf. The accountant forgets to account for the purchase.
Do you think this amount is material? Why or why not?
Qs question 1
Qs question 2
Make sure to use to link back to if these errors “would impact the users economic decisions”
These examples are extreme to illustrate the point, however materiality is typically more judgmental. Let’s do an example to illustrate.