INTRODUCTION

Muhammad Usman Ghani

Shehla Gul
Shahzaib khan

LO 4: Concept of
Materialityrelative importance of an
Materiality
item or event.
By

Materiality principle accountants use

estimated amounts and even to ignore
accounting principles if these actions do not
have an impact on the financial statements.

Item

is material only if its information might

influence the decision of financial statement
users

Cost

effectiveness.

Materiality And Adjusting

Entries
materiality

concept permits charging low cost

purchases directly to expense accounts, rather
than to asset accounts.

Utility

bills, charged to expenses as the bills are

paid, rather than as the services are used,
resulting error in the financial statements is
immaterial.

Adjusting

entries to accrue unrecorded

expenses or revenues may be ignored if the
amounts are immaterial.

Materiality Is a Matter of
Professional Judgment
Factors

considered while making

judgments

First, what constitutes a material amount

varies with the size of the organization.

Second, materiality depends on the nature of

the item as well as its dollar amount.

LO 5: ADEQUATE DISCLOSURE
Adequate

disclosure is one of the most important

accounting principle for the users of financial statements.

This

principle simply means that financial statements

should be accompanied by any information necessary for
the statements to be INTERPRETED PROPERLY.

Drafting

these notes can be one of the most challenging

tasks confronting accountants at the end of the period.

Two

items always disclosed in the notes to the financial

statements are:
1) the accounting methods in use
2) the due dates of major liabilities.

What type of information must be

disclosed?
There

is no comprehensive list of information that

should be disclosed In financial statements.

In

some cases companies must even disclose

information that could have Damaging effect on the
business.

Business

may need to disclose such matters as the

following:
1) Scheduled plant closings
2) Specific customers that account for a large portion of
the companys business.
3) Unusual transactions or conflicts of interest between
the company & its key officers.

LO 6: How do we prepare interim financial statements?:

Definition:

financial statements which are

of duration less than one year.

subtraction

of previous balance....

convenient

in a computerizes system

similarity

of financial statements