A review on the evolution of the definitions of materiality

This paper reviews the accounting and auditing definitions on materiality. The International Standard of Auditing (ISA) 320 'Materiality in planning and performing an audit' defines performance materiality as "the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures" (paragraph 9). The definition is vague and does not address the extent of omissions and misstatement that leads to materiality. This paper supplements by reviewing the evolution of the definitions from accounting literature, regulatory bodies, court cases, non-profit organisations. Results of this mega review have provided ramifications to the accounting professions, practitioners and policy makers.