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April 2022

MATERIALITY WITH REFERENCE TO THE FINANCIAL STATEMENTS

By Abhishek Agrawal | Chartered Accountant
Reading Time 16 mins
INTRODUCTION
Materiality is a widely used concept for the preparation and presentation of financial statements and reporting thereon. Management assesses the materiality with respect to the preparation and disclosures made in the financial statements, aiming at the information needs of the primary users of the financial statements (i.e., existing and potential investors, lenders and other creditors) that can influence their decisions regarding investments, and providing their services or resources to the entity.

Auditors, on the other hand, assess the materiality while making judgements about the nature, timing and extent of the audit procedures to be performed and the implications of the misstatements observed during the audit to express an opinion as to whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

Further, from the auditor’s perspective, there could be other considerations like the type of audit opinion based on the pervasiveness of misstatements, reporting under CARO 2020, internal financial controls with reference to the financial statements, and the restatement of financial statements etc., wherein materiality plays a crucial role.

In this article, an attempt has been made to discuss the importance of materiality for the preparers and the a
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