Auditing & Assurance › Audit Risk & Materiality
Why is materiality a matter of professional judgment?
BeginnerAnswer
Materiality depends on the size and nature of items and the specific circumstances of the entity and its users, none of which a fixed rule fully captures. The auditor uses judgment to choose benchmarks, percentages, and to weigh qualitative factors, so two auditors might reasonably set slightly different amounts for different entities.
Real-world example The auditor judges that revenue, not profit, best reflects users' focus for a growth-stage company, and sets materiality accordingly.