Legal Definitions - Materiality

Definition: Materiality refers to the importance or relevance of something in a particular matter. It is the extent to which something can affect a decision or outcome.

• When a company is preparing its financial statements, it must consider the materiality of each item. For example, a small error in a $10 expense is not material, but a $10,000 error is.
• In a court case, evidence that is material to the case is admissible, while evidence that is not material is not allowed.
• When conducting a risk assessment, it is important to identify the material risks that could have a significant impact on the organization.

The examples illustrate how materiality is used in different contexts. In accounting, materiality is used to determine what information should be included in financial statements. In law, materiality is used to determine what evidence is relevant to a case. In risk management, materiality is used to identify the most important risks that need to be addressed.