Determination of Materiality Thresholds

Materiality is not defined by a set numerical amount on which auditors depend. It is vaguely defined to leave room for human judgment which breeds general inconsistency. Auditors often derive estimates of financial statement balances from sampling. Estimations, naturally, will differ from client-reported balances. If the estimates are not materially different from client-reported balances, auditors generally accept the balances as fairly presented. The question arises as to what determines a material difference. Accountants are apprehensive to define materiality as a set quantity. Often accountants will determine that an item is material if it makes a difference to a decision-maker. This paper will explore how accountants determine thresholds of materialit