Materiality

Despite its legal origin, since the beginning of the twentieth century, Materiality has become increasingly prominent in Accounting. Since the concept has many facets (Edgley 2014), several definitions of it were coined over time by academics and boards (see the reviews of Bellandi (2017), Chong (2015), and CRD (2016)). Some of these definitions, referenced both in financial and nonfinancial reporting, are presented in this entry. The minimum common denominator is that Materiality defines the information that is useful for users of corporate reports. Indeed, Materiality gives a measure of the estimated effect that an item of information (or its absence) may have on the accuracy or validity of a report. In other words, Materiality identifies what counts in a report for its readers. Less technically, Materiality is a concept related to common sense, as some remind us that “there is no need to be concerned with what is not important or with what does not matter” (Bernstein 1967, p. 87), and if an issue “doesn’t really matter, don’t bother with it. […] Without such a rule, unwarranted amounts of time would almost certainly be spent on insignificant matters […]” (Hicks 1964, p. 158). After discussing the evolution of Materiality, this entry closes with an introduction to the practical application of Materiality carried out through processes and tools dedicated to the definition of companies’ reporting content.