Materiality

This is a threshold at which insignificance becomes significance.

Often it is defined for particular circumstances in loan agreements, for example cross default shall not apply for late payment of a trade creditor for an amount less than a given threshold figure.

Materiality is also a fundamentally important concept in financial accounting.

Relevant accounting standards, principles and disclosures need only be applied to material items.

Similarly in risk management, only material risks require active management. (While non-material risks can be retained and monitored periodically to ensure that they remain non-material.)

See also

• Cross default
• Default
• Loan agreement
• Guide to risk management