Last reviewed: July 2026.
Information is material when omitting, misstating or obscuring it could reasonably be expected to influence decisions made by primary users of general-purpose financial reports. Materiality is entity-specific and depends on magnitude, nature and context.
There is no universal IFRS percentage that automatically determines materiality. Quantitative thresholds can be useful starting points, but they do not replace professional judgement.
Why materiality matters
Materiality affects recognition, measurement, presentation, disclosure, correction of errors and the level of detail in financial statements. It helps entities focus reports on information that matters rather than overwhelming users with immaterial detail.
Materiality does not permit intentional misstatement or non-compliance. It is a judgement about whether information could influence decisions.
Factors in a materiality judgement
| Factor | Question to ask | Example |
|---|---|---|
| Magnitude | How large is the item relative to relevant measures? | An error compared with revenue, profit, assets or equity. |
| Nature | Is the item important regardless of size? | Related-party transaction, fraud, regulatory breach or management remuneration. |
| Context | Does it change a trend, covenant or decision? | A small error turns a loss into a profit. |
| Aggregation | Are individually small items material together? | Repeated misclassifications across several accounts. |
| Obscuring | Could excessive or unclear disclosure hide useful information? | Boilerplate accounting policies bury entity-specific facts. |
Quantitative benchmarks
Possible benchmarks include profit before tax, revenue, total assets, equity or expenses. The appropriate benchmark depends on what users focus on and whether the measure is stable. A profit-based benchmark may be unsuitable for a loss-making or volatile entity.
Percentages are planning aids, not IFRS rules. Evaluate the actual circumstances and consider lower thresholds for sensitive disclosures.
Qualitative materiality
An item can be material because of its nature even when the amount is small. Examples include fraud by senior management, illegal acts, related-party transactions, breaches of loan covenants, changes in key judgements, and information affecting management compensation.
A small error that changes a profit to a loss or allows a target to be met can be material because it changes how users interpret performance.
Omission, misstatement and obscuring
Material information can be lost by omission, incorrect reporting or obscuring. Obscuring can occur when material facts are hidden within immaterial detail, unclear language, inappropriate aggregation or scattered disclosures.
Adding every possible disclosure does not necessarily improve reporting. Entity-specific, organised and concise information is more useful than repeated boilerplate.
The four-step materiality process
- Identify information that could be material using IFRS requirements and user needs.
- Assess quantitative and qualitative factors.
- Organise material information clearly in the primary statements and notes.
- Review the complete draft to ensure material information is not omitted, misstated or obscured.
IFRS Practice Statement 2 provides non-mandatory guidance supporting materiality judgements.
Materiality and accounting policies
Entities disclose material accounting policy information rather than generic descriptions of every policy. Policy information may be material when users need it to understand significant transactions, choices, judgements or application of requirements to entity-specific facts.
Read the guide to accounting policies and estimates.
Materiality and errors
Material prior-period errors are normally corrected retrospectively under IAS 8 unless impracticable. Current-period errors are corrected before financial statements are issued. Individually immaterial errors should also be considered in aggregate.
Management should not deliberately leave small errors uncorrected to achieve a target. Review the accounting errors and correction guide.
Materiality in presentation
Material classes of items should be presented separately, while immaterial items may be aggregated with similar items. The exact presentation requirements transition as IFRS 18 becomes effective for annual periods beginning on or after 1 January 2027, with earlier application permitted.
Regardless of the presentation Standard applied, judgement is needed to communicate performance and financial position without hiding important information.
Worked example
An entity reports profit before tax of 2,000,000 CU. An unrecorded expense is 30,000 CU, or 1.5% of profit. The percentage alone may suggest the item is not material. However, suppose recording it would cause a loan covenant breach or reveal a payment to a director. Its nature and consequences can make it material.
Conversely, a larger routine reclassification may be less decision-relevant if it does not change totals, trends or required disclosures, though it still needs accurate presentation.
Documentation checklist
- primary users and their likely decisions;
- chosen benchmarks and reasons;
- quantitative size of items and errors;
- qualitative characteristics and sensitivity;
- aggregation of similar items;
- effect on trends, covenants and key metrics;
- presentation and disclosure clarity;
- final review of the complete financial statements.
Link the judgement to the fundamental accounting concepts and the financial statement presentation guide.
Common mistakes
- treating a percentage as a rigid IFRS rule;
- ignoring qualitative factors;
- assessing each error separately without aggregation;
- using materiality to justify intentional misstatement;
- including so much boilerplate that important information is obscured;
- failing to update materiality when circumstances change.
Reassessment through the reporting process
Materiality is not assessed once and forgotten. Update the judgement when draft results, new events, audit findings or disclosure interactions become known. An item considered immaterial in isolation can become material when combined with related information or viewed in the complete statements.
Key takeaway
Materiality is a decision-focused judgement about what could influence users. Strong assessments combine size, nature and context, consider aggregation and obscuring, and document why information is recognised, corrected, presented or disclosed.
Official references: IFRS Practice Statement 2: Making Materiality Judgements and IAS 8 Basis of Preparation of Financial Statements.
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