2 April 2026
Materiality conversations boards actually understand
Materiality is often reduced to “five percent of profit.” That shorthand fails when earnings are thin, volatile, or intentionally reinvested. Boards deserve a conversation about users of the statements — lenders watching covenants, parents consolidating results, minority shareholders reading footnotes.
Benchmarks we discuss
Revenue, total assets, and equity can each be the better anchor depending on the entity. For a distributor with thin margins, revenue-based materiality may catch cut-off errors that a profit-based figure would miss. For an asset-heavy manufacturer, inventory and PPE misstatements matter more to lenders than a small swing in net income.
Performance materiality
We explain the buffer below planning materiality that guides sample sizes. Directors who understand this buffer stop asking why we test accounts below the headline threshold — those tests protect against aggregated error.
Documenting the judgment
Our planning memo records the benchmark chosen, the qualitative factors considered (related parties, regulatory focus, first-year engagements), and any revision after interim results. Transparency here prevents year-end surprise when an adjustment approaches the line.