Financial statements
Assets, liabilities, equity, income, expenses; recognition rules; IFRS 18.
Materiality · accounts and audit
Materiality in accounting: financial statements, audit and where sustainability differs
Materiality in accounting means information whose omission, misstatement or obscuring could reasonably be expected to influence the decisions of the primary users of financial statements.
An auditor turns that idea into amounts under ISA (UK) 320, including a lower performance materiality that drives how much testing is done.
Neither number carries into a sustainability assessment, where the standards set no threshold at all.
Financial statements
The definition of material, from IAS 1 to IFRS 18
IFRS 18 Appendix A and ¶B1, verbatim: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”
IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027, and it replaces IAS 1 Presentation of Financial Statements.
Read where the definition moved
In October 2018 the IASB issued Definition of Material (Amendments to IAS 1 and IAS 8), and the IFRS 18 page says that amendment “is included in Appendix A and paragraphs B1–B5 of IFRS 18.”
IAS 8, now titled Basis of Preparation of Financial Statements, says: “Material information is defined in Appendix A of IFRS 18 Presentation and Disclosure in Financial Statements. Material is used in this Standard with the same meaning.” (IAS 8, 2026 issued text).
So cite IAS 1 ¶7 for periods beginning before 1 January 2027 and IFRS 18 Appendix A and ¶¶B1–B5 from then.
IFRS 18 is not a rewrite of IAS 1: the IASB says it focused on the statement of profit or loss and moved some IAS 1 paragraphs to IAS 8 and IFRS 7.
This page does not state when IFRS 18 applies in the UK; UK adoption has not been checked here.
One definition, three verbsExplore
IFRS 18
What IFRS 18 changed, and what it kept
The IASB says it did not reconsider every aspect of IAS 1 when developing IFRS 18, and focused instead on the statement of profit or loss.
The definition of material did not change in substance; it changed address.
Read how to cite it in a 2026 or 2027 report
A financial year beginning before 1 January 2027 still cites IAS 1 ¶7; a year beginning on or after that date cites IFRS 18 Appendix A.
IAS 8 carries the pointer: material information “is defined in Appendix A of IFRS 18” and is used in IAS 8 “with the same meaning”.
The IASB’s project summary describes the wider changes to presentation, which are outside the scope of this page.
IAS 1 to IFRS 18Explore
Whose decisions
Every definition of material names a reader
The financial-statement, audit and UK SRS definitions all look to the decisions of investors, lenders and other creditors.
The revised ESRS add a second audience: other users who make decisions about the undertaking’s material impacts, risks and opportunities.
Read the user definitions
ISA (UK) 320 ¶2 says judgements are based on “the common financial information needs of users as a group”, and that the effect on specific individual users is not considered.
UK SRS S1 Appendix A defines primary users as existing and potential investors, lenders and other creditors (UK SRS S1).
The second ESRS audience is what makes room for double materiality, which has no counterpart in accounting.
Who the information is forExplore
Module 01 / 04
IFRS accounts
Primary users of general purpose financial statements (IFRS 18 App A).
Module 02 / 04
Audit
Users as a group, not individual users whose needs vary (ISA (UK) 320 ¶2).
Module 04 / 04
Revised ESRS
Primary users, and other users of the sustainability statement (ESRS 1 ¶23).
Connected information
Accounts and sustainability reports must still agree
Different materiality judgements do not mean different facts.
UK SRS S1 requires sustainability-related financial disclosures to be for the same reporting entity as the financial statements (¶20), with consistent data and assumptions (¶23).
Read what connectivity means in practice
A matter immaterial to the accounts can still be material to the sustainability report, because BC69 expects the judgements to differ.
But a figure that appears in both, such as a provision or an impairment assumption, should be the same figure.
The paragraph-by-paragraph map is on UK SRS S1, and the ISSB original on the IFRS S1 general requirements.
UK SRS S1 ¶¶20–24Explore
Audit
Audit materiality turns judgement into amounts
ISA (UK) 320 ¶10: “When establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole.”
¶11: “The auditor shall determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures.”
Read the definitions and the application material
¶9(a) defines performance materiality as “the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce aggregation risk to an appropriately low level”.
¶9(b) defines aggregation risk as “the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statement as a whole.”
¶2 summarises what frameworks generally say: misstatements are material if, individually or in aggregate, they could reasonably be expected to influence users’ economic decisions; judgements are affected by size, nature or both; and they rest on the common needs of users as a group.
A13: performance materiality “is not a simple mechanical calculation and involves the exercise of professional judgment.”
The current FRC edition is Revised June 2016, updated September 2025, and is effective for audits of financial statements for periods commencing on or after 17 June 2016 (FRC standard page).
- 1
Overall materiality
Set for the financial statements as a whole when establishing the audit strategy (¶10).
- 2
Specific levels
Lower amounts for items where smaller misstatements could influence users (¶10).
- 3
Performance materiality
Set below overall materiality to reduce aggregation risk (¶¶9, 11).
- 4
Judgement
Not a simple mechanical calculation; it reflects the auditor’s understanding of the entity (A13).
The 5% question
The audit percentages are examples, not rules
A8: “the auditor may consider five percent of profit before tax from continuing operations to be appropriate for a profit-oriented entity in a manufacturing industry, while the auditor may consider one percent of total revenue or total expenses to be appropriate for a not-for-profit entity.”
It continues: “Higher or lower percentages, however, may be deemed appropriate in the circumstances.”
Read why the figure does not travel
The percentages are illustrations of an auditor’s judgement about testing, not a disclosure threshold for the company.
They are tied to the financial statements’ own benchmarks, such as profit before tax, which say nothing about impacts on people or the environment.
Nothing in UK SRS S1 or the revised ESRS imports them; materiality thresholds sets out what each framework does say.
ISA (UK) 320 A4 and A8Explore
Module 01 / 04
Judgement
“Determining materiality involves the exercise of professional judgment” (A4).
Module 02 / 04
Benchmark
A percentage is often applied to a chosen benchmark as a starting point (A4).
Sustainability
Why sustainability materiality is a different judgement
The ISSB built its definition of material information on the IASB’s, removing “enterprise value” from the exposure-draft wording (BC67).
Its Basis for Conclusions then says, at BC69: “Materiality judgements for sustainability-related financial disclosures will inevitably differ from those for financial statements.”
Read the sustainability provisions
UK SRS S1 ¶18 uses the same structure of definition, aimed at primary users of general purpose financial reports, and ¶3 frames effects on cash flows, access to finance or cost of capital (UK SRS S1).
¶B19: “this Standard does not specify any thresholds for materiality or predetermine what would be material in a particular situation.”
The ISSB’s November 2024 educational material repeats that no thresholds are specified and that materiality is entity-specific.
Revised ESRS 1 ¶46 calls financial materiality for sustainability reporting “an expansion of the scope of materiality used in the process of determining which information shall be included in the undertaking’s financial statements”.
¶37 asks for “appropriate qualitative considerations and quantitative thresholds”, and AR 13 says a qualitative analysis may be sufficient (DR (EU) 2026/1563).
The UK test is set out on UK SRS materiality and the outside-in lens on financial materiality.
The same word
Sustainability disclosures
Prospects over longer horizons; no thresholds (UK SRS S1 ¶B19); impacts too under the ESRS.
Side by side
Four meanings of material, one table
| IFRS financial statements | Audit (ISA (UK) 320) | UK SRS S1 | Revised ESRS | |
|---|---|---|---|---|
| Who decides | The preparer | The auditor | The preparer | The preparer |
| Whose decisions | Primary users of general purpose financial statements | Users as a group (¶2) | Primary users of general purpose financial reports (¶18) | Primary users, and other users of the sustainability statement (ESRS 1 ¶23) |
| What it governs | What the statements present and disclose | How much audit work is done | Which sustainability information is disclosed | Which topics and information are reported |
| A number? | No number in the definition | Amounts set by judgement; A8 gives examples | None (¶B19) | Qualitative considerations and quantitative thresholds, chosen by the company (¶37) |
| Impacts on people and environment | No | No | Only as sources of risks and opportunities | Yes, in their own right |
The shared idea is the three verbs, omitting, misstating or obscuring, and a reasonable expectation of influence on someone’s decision.
What differs is whose decision, about what, and whether a number is ever involved; materiality explained covers all four in one place.
Assurance
Assuring sustainability information is a separate field
An audit of the financial statements and an assurance engagement on sustainability information use different standards and different materiality judgements.
The FRC issued ISSA (UK) 5000 on 12 November 2025, effective for sustainability information reported for periods beginning on or after 15 December 2026, or as at a date on or after then.
Read the assurance positions
The FRC’s covering release describes ISSA (UK) 5000 as intended for voluntary use by UK assurance providers; that description is the release’s, not the standard’s own text.
Assurance of UK SRS reporting is not required, and sustainability assurance sets out the UK position.
For EU reporters, assurance under the CSRD covers the limited assurance opinion, which extends to the process used to identify the information reported.
Two assurance worldsExplore
Module 02 / 04
ISSA (UK) 5000
Issued 12 November 2025; effective for periods beginning on or after 15 December 2026.
Module 04 / 04
CSRD
Limited assurance only; the reasonable-assurance path was deleted.
Dates
Materiality in accounting and audit, by date
- 17 June 201601
ISA (UK) 320 effective
For audits of financial statements for periods commencing on or after this date. - October 201802
Definition of Material
The IASB amends IAS 1 and IAS 8 to clarify the definition and align it across IFRS. - April 202403
IFRS 18 issued
Replaces IAS 1; the definition moves to Appendix A and ¶¶B1–B5. - 25 September 202504
ISA (UK) 320 updated
The FRC publishes the updated edition with conforming amendments. - 12 November 202505
- 25 February 202606
- Periods from 1 January 202707
An illustration
One company, three materiality judgements
The company and its figures are invented.
A UK-listed manufacturer reports under IFRS, is audited under ISAs (UK), and reports against UK SRS on a comply-or-explain basis.
- 01 / Accounts01
Preparer’s judgement
Finance decides which items are material to present or disclose, applying the IFRS definition. - 02 / Audit plan02
Auditor’s amounts
The auditor sets overall materiality, then a lower performance materiality to cover aggregation risk. - 03 / Sustainability03
A separate assessment
The sustainability team assesses which risks and opportunities could affect prospects, with no prescribed number. - 04 / Connection04
Connected information
Assumptions used in both reports are kept consistent, while the judgements stay distinct.
The illustration shows three teams using one word for three jobs; it is not a finding about any company.
What goes wrong
Five materiality in accounting mistakes
Most errors come from moving a number or a citation from one of these settings into another.
The fifth is assuming that sustainability materiality must be quantitative; revised ESRS 1 AR 13 says a qualitative analysis may be sufficient.
Read the five in full
Citing the wrong standard
IAS 1 ¶7 before 1 January 2027; IFRS 18 Appendix A from then.
Treating A8 as a rule
An auditor “may consider” 5% or 1%; other percentages may be appropriate.
Importing an audit threshold
UK SRS S1 ¶B19 and revised ESRS 1 ¶37 set none.
Mixing the roles
The preparer judges disclosure; the auditor sets amounts to plan testing.
Assuming numbers are required
Revised ESRS 1 AR 13: qualitative analysis may be sufficient.
Keep the meanings apartExplore
Module 01 / 04
Wrong standard
Citing IAS 1 for periods from 2027, or IFRS 18 for earlier ones.
Module 03 / 04
Imported threshold
Carrying an audit percentage into a sustainability assessment.
Frequently asked
Questions people ask
What is materiality in accounting?
In IFRS financial statements, information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those statements.
That is the IFRS 18 Appendix A wording, which carries the 2018 definition previously in IAS 1.
Where is the definition of material in IFRS now?
For annual periods beginning on or after 1 January 2027, in Appendix A and ¶¶B1–B5 of IFRS 18, which replaces IAS 1.
IAS 8, now titled Basis of Preparation of Financial Statements, says material information is defined in Appendix A of IFRS 18.
For earlier periods, cite IAS 1.
Has the UK adopted IFRS 18?
This page does not state a UK adoption date.
UK companies applying UK-adopted international accounting standards should check the UK Endorsement Board’s adoption status; that check has not been recorded here.
What is audit materiality?
Under ISA (UK) 320 the auditor determines materiality for the financial statements as a whole when setting the overall audit strategy (¶10), and lower levels for particular items where smaller misstatements could influence users.
It is a professional judgement about the auditor’s work, not a disclosure rule for the company.
What is performance materiality?
ISA (UK) 320 ¶9(a): the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce aggregation risk to an appropriately low level. ¶9(b) defines aggregation risk as the probability that uncorrected and undetected misstatements together exceed materiality for the financial statements as a whole.
Is audit materiality 5% of profit before tax?
No rule says so.
ISA (UK) 320 A8 gives examples an auditor “may consider”: five per cent of profit before tax from continuing operations for a profit-oriented manufacturer, or one per cent of total revenue or expenses for a not-for-profit. It adds that higher or lower percentages may be appropriate.
What is ISA 320?
The International Standard on Auditing on materiality in planning and performing an audit.
In the UK the FRC issues ISA (UK) 320, currently Revised June 2016 and updated September 2025, effective for audits of financial statements for periods commencing on or after 17 June 2016.
Does accounting materiality apply to sustainability reporting?
Not directly.
The ISSB aligned its definition of material information with the IASB’s, but its Basis for Conclusions says sustainability materiality judgements “will inevitably differ” from those for financial statements (BC69).
UK SRS S1 ¶B19 and revised ESRS 1 ¶37 set no numeric threshold.
Can I use 5% of profit as my sustainability materiality threshold?
Nothing in UK SRS or the ESRS sets one, and ISA (UK) 320’s percentages are audit examples.
A company may choose quantitative thresholds under revised ESRS 1 ¶37 if it records and applies them consistently, but no standard supplies the figure.
How does ESRS financial materiality relate to the financial statements?
Revised ESRS 1 ¶46 calls it “an expansion of the scope of materiality used in the process of determining which information shall be included in the undertaking’s financial statements”, and extends it to risks and opportunities in the value chain.
What did the 2018 Definition of Material amendments change?
In October 2018 the IASB issued Definition of Material (Amendments to IAS 1 and IAS 8), which clarified the definition and made it consistent across IFRS Accounting Standards.
IFRS says the amendment is now included in Appendix A and ¶¶B1–B5 of IFRS 18.
Who assures sustainability information in the UK?
Assurance of UK SRS reporting is not required.
The FRC issued ISSA (UK) 5000 on 12 November 2025, which it describes as intended for voluntary use, effective for periods beginning on or after 15 December 2026.
CSRD reporters in the EU need limited assurance.
Is materiality in accounting the same as double materiality?
No. Accounting materiality is about information for users of financial statements.
Double materiality is the ESRS test for a sustainability statement, covering impacts on people and the environment as well as financial effects on the company.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner.
Secondary commentary is never the source for a number.
Checked against 15 sources fromIFRS FoundationFinancial Reporting CouncilDepartment for Business and TradeFinancial Conduct AuthorityEUR-Lex
- IFRS FoundationIFRS 18 Presentation and Disclosure in Financial Statements — standard page
Effective for annual periods beginning on or after 1 January 2027; replaces IAS 1; the 2018 definition of material is in Appendix A and ¶¶B1–B5.
- IFRS FoundationIFRS 18 — issued text, Appendix A and ¶B1
The definition of material information, verbatim.
- IFRS FoundationIAS 8 Basis of Preparation of Financial Statements (2026 issued text)
“Material information is defined in Appendix A of IFRS 18”.
- IFRS FoundationIAS 1 Presentation of Financial Statements — standard page
The standard IFRS 18 replaces; cite it for periods before 1 January 2027.
- IFRS FoundationProject Summary: IFRS 18 (April 2024)
The IASB’s summary of the new standard.
- Financial Reporting CouncilISA (UK) 320 (Revised June 2016) (Updated September 2025) — ¶¶2, 9–11, A4, A8, A13
Materiality and performance materiality in a UK audit.
- Financial Reporting CouncilISA (UK) 320 — standard page
The current edition, published 25 September 2025.
- Financial Reporting CouncilISSA (UK) 5000 — sustainability assurance standard
Effective for periods beginning on or after 15 December 2026.
- IFRS FoundationIFRS S1 Basis for Conclusions — BC67, BC69
Sustainability materiality aligned with the IASB definition; judgements “will inevitably differ” from financial statements.
- IFRS FoundationSustainability-related risks and opportunities and the disclosure of material information (November 2024)
No thresholds are specified; materiality is entity-specific.
- Department for Business and TradeUK SRS S1 — ¶¶3, 18, B19
Single (financial) materiality; no thresholds specified.
- Department for Business and TradeUK SRS S1 and S2 — publication page
Published 25 February 2026.
- Financial Conduct AuthorityPS26/19 — UK SRS on a comply-or-explain basis
Listed companies, periods beginning on or after 1 January 2027; no assurance requirement.
- EUR-LexDirective (EU) 2026/470 (Omnibus I) — recital 5 and Art 1(3)
CSRD assurance is limited assurance; standards due by 1 July 2027.
- EUR-LexCommission Delegated Regulation (EU) 2026/1563 — revised ESRS 1 ¶¶37, 46, AR 13
Qualitative considerations and quantitative thresholds; financial materiality wider than the financial statements.
Continue reading
Read next
The hub
Materiality explained
One definition, four tests: accounts, audit, UK SRS, ESRS and GRI.
Method
Materiality thresholds
Why no sustainability standard sets a number.
Lens
Financial materiality
The sustainability lens closest to accounting materiality.
The UK standard
UK SRS S1
The UK general requirements standard.