Materiality affects which aspect of financial reporting?

Materiality is a key concept in accounting that refers to the significance of transactions, amounts, or details in financial statements that could influence the decisions of users. This means that any information considered 'material' is essential for stakeholders—such as investors, creditors, and management—when making economic decisions. If information is deemed material, it must be included in financial reports to provide a complete and accurate picture of a company's financial health.

This principle ensures that financial reports are not only compliant with accounting standards but also relevant to the decision-making processes of those who rely on them. For instance, if a company has a small expense that does not significantly affect its overall financial status, it may not need to report this in detail, as it would not influence decisions. On the contrary, larger transactions or contingent liabilities that could significantly impact a company's financial position must be disclosed.

In summary, materiality directly influences what information is included in financial reports and how it is presented, ensuring stakeholders have access to all necessary information that could affect their decisions.