Materiality
The threshold above which a misstatement could reasonably be expected to influence the economic decisions of someone relying on the financial statements. Set by the auditor at the planning stage.
Related terms
- Performance Materiality
An amount set below overall materiality, to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
- Tolerable Misstatement
The maximum misstatement in a population that the auditor is willing to accept, used to determine sample size and evaluate sample results.
- Audit Risk
The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated — the product of the risk of material misstatement and detection risk.
- Loan Covenant
A condition attached to a borrowing that the borrower must comply with, breach of which can trigger default or accelerated repayment regardless of whether payments are current.
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