Materiality Concept: In law there is a doctrine called de minimis non curat lex, which means that the court will not consider trivial matters. As indicated by the scenario it seems that the decision problem is a matter if the accounting systems annual conference that is previously scheduled to occur on Septembershould be canceled, due to the fact Hurricane Katrina has occurred and demolished building and homes leaving them in ruin in the city of New Orleans, Louisiana.
However, the concept does clearly allow for the amount of revenue recognized to be less than the selling price of the goods and services sold.
In other words, the total of which the erroneous item forms part must be considered. Determining whether or not an item is material is a very subjective exercise. It is for the preparer of accounts to interpret what is and what is not material.
In these accounts, recognition is generally given to the accruals concept insofar as it relates to expenses.
There is no absolute measure of materiality. Second International Company is thinking of opening a plant in Germany. Solution to the clash between historical cost concept and Prudence convention Williamson states that prudence should prevail over the historical cost concept.
Examples include restaurants, beauty parlours and barber shops, and income tax preparation firms. The going-concern concept leads to the proposition that individual financial statements are part of a continuous, inter-related series of statements.
Since most of these establishments do not extend credit to their customers, cash-basis profit may not differ dramatically from accrual-basis income. This is because a pure cash-basis approach would require treating the acquisition of inventories as a reduction in profit when the acquisition costs are paid rather than when the inventories are sold.