What does 'materiality' mean in accounting?

Materiality in accounting refers to the importance or significance of information in influencing the decisions of users. Specifically, information is considered material if its omission or misstatement could impact the economic decisions made by those reading the financial statements. This concept emphasizes that not all information holds equal weight; only those items that could sway decisions are deemed material.

For instance, a small error in financial reporting may not affect investors or stakeholders, as it does not influence their economic decisions. However, if a significant figure is misrepresented—such as substantial revenue or expenses—it could lead to incorrect decisions regarding investment, lending, or managerial actions. Therefore, identifying what is material ensures that the financial statements present a true and fair view, allowing users to rely on them for accurate decision-making.