Concept: materiality

Some types of expenditure are less important in a business context than others. So, absolute precision in the recording of these transactions is not absolute essential.

Determining whether or not an item is material is a very subjective exercise. There is no absolute measure of materiality. It is common to apply a convenient rule of thumb (for example to define the material items as those with a value greater than 5% of the net profit disclosed by the accounts). But some items disclosed in accounts are regarded as particularly sensitive and even a very small misstatement of such an item would be regarded as a material error.

The assessment of an item as material or immaterial may affect its treatment in the accounts. For example, the profit and loss account of a business will show the expenses incurred by the business grouped under suitable captions (heating and lighting expenses, rent and rates expanses and so on); but in the case of very small expenses it may be appropriate to lump them together under a caption such as “sundry expenses”, because a more detailed breakdown would be inappropriate for such immaterial amounts.

EXERCISES

I.Find in the text the words to complete the following phrases and use them in the sentences of your own to illustrate their meaning.

1. …concepts;

2. to prepare … statements;

3. owner’s … … information;

4. Accounting Period …;

5. … Evidence;

6. common … of measurement;

7. monthly … period;

8. … belongings;

9. to make … decisions;

10. checking ….

II. Find in the text English equivalents to the following words and word combinations. Make sentences of your own with these phrases.

Особисті речі; поточний рахунок; необмежено; виходити на пенсію; ділова операція; квитанція; товарний чек; бухгалтерський запис; одиниця виміру; готівка; дохід; клієнт; попередній рік; відображення; послідовний; обачність; обережний (передбачливий); суттєвість; неправильне формулювання; оцінювання; розрив; несуттєвий.

III. What do the following abbreviations mean? Check the answers in the article below.

GAAP IFRS IAS IASC