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0 Materiality concept
This principle causes accountants to ignore insignificant expenses. However, it is important to mention that you cannot ignore anything. Only expenses that have a small impact on the financial statements of the company and that will not mislead other financial advisers when they read them later can be ignored.
According to many legal and accounting experts, an accountant does not have to record any material or object that is deemed irrelevant.
The concept of materiality also depends largely on the size of the entity. A billion euro industry may consider 1 million euro transactions to be irrelevant, while some companies do not even earn a billion euro in annual revenue, so this transaction would be considered very important.
However, there are no clear instructions for deciding whether an item is relevant or irrelevant, so accountants need to be careful about this and record the details in financial documents if they are unsure. Prevention is better than cure!
The most important thing to remember about this concept is that all transactions or expenses should be recorded if, in the long term, they will affect the financial results or cash flows of the company. If they are not affected, the expenses do not have to be recorded.
