Importance of Materiality Concept in Accounting
1. Relevance: Materiality is the method through which financial statements provide relevant information to users thereby enabling them to make sound judgments about the economic activities.
2. Focus on Key Information: This leads to a situation in which attention is directed precisely to the presented numbers and avoidance of needless detail, thereby, simplifying the reporting procedure.
3. Cost-Effectiveness: Exclusively, the accountants are primarily concerned with physical objects so that the allocation of resources is done selectively and, ultimately, the amount of resources used by preparing financial statements is minimized.
4. Decision-Making: Materiality helps users to identify important areas in the information needed for decision-making, the main factors of an enterprise’s financial position and performance are pointed out.
5. Transparency: Materiality advocates complete disclosure on financial reporting by avoiding possible distortion of meaningful episodes by trivial matters.