Materiality & Decision Making Essay

1575 WordsMay 17, 20147 Pages
1. Introduction The materiality in accounting is considered as a very old and an important issue. Many economic activities and decision regarding those are based on the materiality. The courts in United Kingdom had primarily accentuated the importance of the disclosures to the users of financial statements since 1800s. In United States, after the Security Act of 1933, the discussions about the importance and implications of materiality have increased. Many researchers had highlighted the importance of the materiality concept in all decision making topics. Furthermore, under the “Generally Accepted Accounting Principles (GAAP), the implication materiality is important and essential to understand in order to prepare and analyze the financial statements of the organization”. It is evident that the role of materiality is highly influential in any decision making process especially related to all the management fields, particularly in accounting as in general practice, the transactions, items and different events are known and treated as immaterial, thus cannot be entertained separately in the financial statements and therefore the provision of information which is considered as immaterial and not relevant by the accountants is not reported to the investors, creditors, and other users of financial statements which will further leads different stakeholders to be conscious and attentive about the every public information whether it is mandatory or non-mandatory information. As explained by Watts and Zimmerman (1986) sometimes the investors and stakeholders pay much more attention to the released no-mandatory information which helps them in the decision making process. As explained by Bernstein (1967), the basic concept of the materiality is very simple and understandable but requires its application under the GAAP which is a big issue for the accountants. This paper

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