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The Impact of Materiality: Accounting's Best Kept Secret


  • Niamh Brennan

    () (School of Business, University College Dublin)

  • Sidney J. Gray

    (School of Business, University of Sydney)


This paper comprises a review of the literature on materiality in accounting. The paper starts by examining the context in which materiality is relevant, and the problems arising from applying the concept in practice. Definitions of materiality from legal, accounting and stock exchange sources are compared. The relevance of materiality to various accounting situations is discussed. Methods of calculating quantitative thresholds are described and illustrated. Prior research is reviewed, focusing on materiality thresholds, and on the materiality judgments of auditors, preparers and financial statement users. The paper concludes with some suggestions for future research and for policy makers concerning this best kept accounting secret.

Suggested Citation

  • Niamh Brennan & Sidney J. Gray, 2005. "The Impact of Materiality: Accounting's Best Kept Secret," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 1(1), pages 1-30.
  • Handle: RePEc:usm:journl:aamjaf00101_1-30

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    References listed on IDEAS

    1. Langevoort, Donald, 2002. "Taming the Animal Spirits of the Stock Market: A Behavioral Approach to Securities Regulation," Berkeley Olin Program in Law & Economics, Working Paper Series qt6th0728d, Berkeley Olin Program in Law & Economics.
    2. William Kinney, 2002. "Earnings Surprise "Materiality" as Measured by Stock Returns," Journal of Accounting Research, Wiley Blackwell, vol. 40(5), pages 1297-1329, December.
    3. repec:bla:joares:v:34:y:1996:i:1:p:151-171 is not listed on IDEAS
    4. repec:bla:joares:v:14:y:1976:i:2:p:320-341 is not listed on IDEAS
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    1. repec:eee:crpeac:v:25:y:2014:i:3:p:255-271 is not listed on IDEAS
    2. NIAMH M. BRENNAN & MARY McGRATH, 2007. "Financial Statement Fraud: Some Lessons from US and European Case Studies," Australian Accounting Review, CPA Australia, vol. 17(42), pages 49-61, July.
    3. Marco Venuti, 2012. "The proposal for updating the EU Accounting Directives: The adequacy of the proposal versus the legislative targets," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2012(4), pages 65-85.


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