Materiality
Materiality is the idea that information matters if leaving it out or stating it wrong could influence the decisions of someone reading the financial statements. It guides how much precision and disclosure a given item warrants in financial reporting, and how much attention an item gets in an audit or review engagement; it is a matter of professional judgement applied by the preparer and auditor for each engagement, not a fixed percentage set by a standard. Related party transactions are one area that often draws extra scrutiny regardless of their dollar size, because of who is on the other side of the transaction. Our financial statements preparation service and review versus audit guide explain how materiality shapes the level of assurance a business chooses.
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