Which concept justifies excluding minor errors from financial statements?
Understand the Problem
The question is asking for the concept that allows for the exclusion of minor errors in financial statements. It lists four options and seeks to identify the correct one based on accounting principles.
Answer
Materiality
The concept of materiality justifies excluding minor errors from financial statements.
Answer for screen readers
The concept of materiality justifies excluding minor errors from financial statements.
More Information
The principle of materiality establishes that only significant financial information—which could influence the decisions of users of the financial statements—needs to be disclosed. Minor errors, which are deemed not to affect stakeholders' decisions, can be excluded based on this concept.
Tips
A common mistake is overestimating the importance of minor errors and cluttering financial statements with unnecessary details. The principle of materiality helps avoid this.
Sources
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