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ACCA Applied Knowledge · Financial Accounting · Qualitative characteristics of useful financial information

Which statement about materiality under the Conceptual Framework is correct?

Materiality is an entity-specific aspect of relevance, judged by the nature or magnitude of an item. It is not a separate characteristic and there is no fixed percentage in IFRS Accounting Standards. Information is material if omitting or misstating it could reasonably influence users' decisions.

  1. AIt is an entity-specific aspect of relevance, based on the nature or magnitude of an itemCorrect
  2. BIt is an enhancing characteristic that improves comparability
  3. CIt is a fundamental characteristic that stands separate from relevance
  4. DIt is a fixed percentage of profit set by IFRS Accounting Standards

Explanation

The Framework treats materiality as an entity-specific aspect of relevance, depending on the nature, magnitude or both of the items. It is not a separate fundamental or enhancing characteristic, and IFRS Accounting Standards set no uniform percentage threshold. Information is material if omitting or misstating it could influence users' decisions.

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