In the context of reporting by management, information is material if it is omitted or misstated, it could influence decisions that users make. In an assurance engagement, misstatements or omissions in the light of subject matter information are considered to be material if they, individually or in the aggregate, could influence decisions which users make.

Materiality is considered in the context of quantitative and qualitative factors (such as size), the nature and extent of the effect of these factors on the evaluation or measurement of the subject matter, and the needs of the intended users of the assurance report. The practitioner uses professional judgement when assessing materiality and the relative importance of quantitative and qualitative factors in a particular engagement.

The quantitative aspect of materiality is generally considered in comparison to the magnitude of potential misstatement in relation to the presentation of the subject matter information. In contrast, the qualitative aspect of materiality primarily concerns the sensitivity of users in relation to the misstatement or the risk of misstatement of the subject matter information. The sensitivity of users would be affected by a variety of factors such as the area in which the misstatement occurs, its nature or history and may change over time.

For example, a service provider that has reported significant deficiencies in its internal controls in one year would be expected to have strengthened its procedures subsequently. Users of the service provider are likely to be sensitive to a relatively minor deficiency in the organisation’s internal controls in the following year as the level of expectation has changed. Because of this variability, the importance of exercising professional judgement in each engagement is paramount.

Materiality is a concept that is used throughout the engagement. For example, when determining the extent of testing to be carried out, the concept will be used to determine the sample size. As the practitioner carries out their testing, exceptions may arise. Whether exceptions lead the assurance report to be qualified is a matter of professional judgement and, again, the practitioner needs to consider materiality in light of the user needs.

Many different materiality considerations can come into play in one assurance engagement. For example, where the subject matter is a set of controls, and the subject matter information includes a description of those controls, materiality with respect to the fair presentation of the description, will include the consideration of qualitative factors – whether the description includes the significant aspects of the process; whether it omits or distorts information that is relevant to users of the report. 

On the other hand materiality with respect to the operating effectiveness of the controls may include both quantitative factors, such as the tolerable rate and observed rate of control failure, and qualitative factors, such as the nature and cause of control failure.

• The discussion paper Materiality in assuring narrative reporting proposes approaches assurance practitioners can use to determine what is material in non-financial assurance engagements.

Page reviewed April 2018. Next review April 2019.