What is materiality? Difference between overall and performance materiality?

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Accepted Answer

Materiality refers to the significance or importance of an item or event in relation to financial statements.

Materiality is a concept used in auditing and accounting to determine the relevance of information.
It involves assessing the impact of an item or event on the financial statements and whether it would influence the decisions of users.
Materiality is subjective and depends on the nature and size of the entity being audited.
Overall materiality is the maximum amount of misstatement that can be considered immaterial in the financial statements as a whole.
Performance materiality is the materiality level set for specific account balances, classes of transactions, or disclosures.
Overall materiality is usually higher than performance materiality.
For example, if a company has total assets of $1 million, overall materiality may be set at $50,000, while performance materiality for accounts receivable may be set at $10,000.

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