Material accounting is popular concept in accounting. The concept of materiality accounting is fundamental to the process of accounting. It covers all the stages from the recording, classification, summarizing, interpreting and presentation. The decision to judge the materiality of the item whether in the aggregation of items, presentation or classification of items shall depend upon the judgment of preparers of the account on the circumstances of particular transactions or case.
Meaning of Material Accounting
It means all the important facts and transactions are should be disclosed in accounting statements. Thus, it means relative importance. The term material is subjective and amenable for interpretation of individual accountants.
It is also possible what is material in one firm may be immaterial for another firm. And also, what is material in one accounting year may not be material in subsequent years. In view of these situations, items which are material information, to the extent that it must be disclosed in the financial statements of the business concern.
The accountant should attach importance to material details and unimportant and immaterial are not to be given. The question what constitutes a material detail is left to the discretion of the accountant. An item is material if there is reason to believe that knowledge of it would influence the decision of the informed investor. This has already been referred to above in connection with Disclosure.
Convention of Material Accounting includes
- Materiality of information
- Materiality of amount
- Materiality of procedure
- Materiality of nature
- Standard material accounting system
- Cost accounting material
- Raw Materials accounting
- Direct Materials accounting
Materiality of Information means the assets, liabilities, receipts and expenditures and other documentary evidence in support of that information. For example : Loans amounts to directors and employees can be material information and it should be comply with as per statutory requirement for disclosing it in the financial statements. Materiality of Amount implies that, it is a highly relative term. An error of Rs. 1,000 may be material in a one entity and not so in case of another entity. Misapplication of accounting policies in one accounting period which is material and proper application of policies is immaterial in another period like that so. Adjusting amounts to the nearest round off rupee is also based on materiality of amounts.
Materiality of Procedure means the accounting procedures are should be applied into accounting practice continuously.
For example : the various methods of depreciation, provision for expenses, treating liability for gratuity on Cash Basis and on Actuarial Basis, etc.
Disclosing procedural changes in valuation of inventories is based on materiality procedures. Materiality of Nature – it implies which items are materially important by nature regardless of the amount involved and any other factor. A small error in such items will be considered as material always.
For example, Managerial people, Director’s Fees, Audit Fees, amount due from directors etc. Convention of Materiality recognizes that some of the items, either individually or in the aggregate, are relatively important for true and fair presentation of financial information in the accounts in conformity with recognized accounting policies and practices. I hope I explained detailed about materiality accounting, If you need any more details feel free to contact me.
Originally posted 2013-10-29 06:27:11.