A REVIEW OF THE PHILOSOPHICAL, PSYCHOLOGICAL, ECONOMIC, AND LEGAL ASPECTS OF THE SIGNIFICANCE OF A FINANCIAL (MATERIALITY) REVEALS THE MULTIDIMENSIONAL NATURE OF THE PROBLEM IN RELATION TO THE AUDITOR'S DECISIONMAKING. THE AUDIT SITUATION ITSELF SHOULD FIRST BE ANALYZED. INTERNAL CONTROL DEFICIENCIES, AUDIT PROCEDURES, AND SUFFICIENCY OF EVIDENCE UNDERLIE THE MATERIALITY DECISION. PRECEDENT SHOULD ALSO BE APPLIED IN DETERMINING WHETHER THE CIRCUMSTANCE OF ERROR PARALLELS PREVIOUS EXPERIENCE AND DICTATES THE RESPONSE REQUIRED. THE CLIENT'S CIRCUMSTANCES SHOULD BE CONSIDERED IN DETERMINING THE MEANING OF AN ERROR. FOR EXAMPLE, THE CLIENT MAY BE HAVING A LIQUIDITY PROBLEM WHICH PRODUCES MISSTATEMENTS AFFECTING NET WORKING CAPITAL AND ITS RELATED RATIOS, OR CLIENT BEHAVIOR MAY BE ILLEGAL. THE EXPECTATIONS OF THE USERS OF FINANCIAL STATEMENTS SHOULD ALSO BE CONSIDERED. IF ANY ERROR OR OMISSION SEVERELY MISLEADS USERS IN THEIR DECISIONMAKING BASED ON THE STATEMENT PRESENTED, MATERIALITY IS INDICATED. (AUDITORS SHOULD ALSO CONSIDER AUTHORITATIVE RULES EMANATING FROM REGULATORY BODIES, COURT CASES, PROFESSIONAL PROMULGATIONS, OR ACCOUNTING FIRM IN-HOUSE PRONOUNCEMENTS AS THEY SHOULD BE BINDING IN THEIR DECISIONS ON MATERIALITY. AUDITORS SHOULD ALSO CONSIDER THEIR PROFESSIONAL REPUTATIONS REGARDING THE CONSEQUENCES OF THE MATERIALITY DECISION MADE IN EACH CASE. (AUTHOR ABSTRACT MODIFIED--RCB)