The International Accounting Standards Board's (IASB) conceptual framework includes a materiality constraint. Which of the following is true regarding this constraint?
A) The IASB's rule for materiality is any item under 5% of net income is considered immaterial.
B) Materiality factors into both internal and external accounting decisions.
C) An item is immaterial if its inclusion or omission would influence or change the judgment of a reasonable person.
D) All of the choices are correct.

Question

Quizplus · Accepted Answer

Materiality is a concept that applies to both internal and external accounting decisions, reflecting its importance in ensuring that financial information is accurately presented to users. The IASB does not specify a quantitative threshold like 5% of net income for materiality; instead, materiality is based on whether the inclusion or omission of an item could influence the decisions of users of financial statements. Therefore, option C is incorrect because it inaccurately defines immateriality, suggesting the opposite of the true definition of materiality.

The International Accounting Standards Board's (IASB) Conceptual Framework Includes a Materiality