The term “significance” (i.e., the state of being significant) implies anything (e.g., an amount, occurrence, transaction, etc.) that has the potential to influence an entity’s judgement (i.e., its management’s judgment) or decision as to the way it tackles a specific aspect of its accounting for a certain event, transaction, etc. An example is a management’s judgment as to whether substantially all the significant risks and rewards incidental to ownership of a financial asset are transferred to other entities.

On the other hand, materiality is a general concept that draws a dividing line between issues/ events that are important and issues that are not for an entity. By definition, a material issue/ event is one that can have a major impact on the financial, operational, reputational, and legal aspects of an entity, including its broader internal and external stakeholders.

Materiality is also an accounting concept (or a convention) that centers on the importance/ significance of information (whether that relating to a monetary amount, transaction, event, or discrepancy (an accounting error). In other words, materiality reflects the impact of an omission, misstatement or obscuring of information in an entity’s financial statements on decisions made by the primary users of general purpose financial statements on the basis of those financial statements. In other words, materiality describes the relative size of a monetary amount against other amounts reported on an entity’s financials. Relatively large amounts are considered material, while relatively small amounts are immaterial.

Materiality (i.e., the extent to which information is material to an entity) depends on the nature or magnitude of information or at times both.

In a nutshell, significant is a general term that may be used in many contexts to imply importance, while materiality is typically specific in its meaning and relates mainly to accounting information and its impact on decision making. An entity could consider a piece of information as material on the basis of specific materiality factors. As a general rule, the more factors that are used in producing such information, or the more significant those factors are, the more likely it is that the respective information is perceived to be material, and vice versa.