What does the term 'materiality' refer to in the context of SOC reports?

In the context of SOC (System and Organization Controls) reports, 'materiality' refers to the significance of misstatements that could influence the decisions of users relying on the report. This concept is rooted in the idea that not all errors or omissions are equally important; rather, materiality helps stakeholders understand which discrepancies could impact their evaluation of the service organization's controls and operating effectiveness.

When assessing a SOC report, users—such as clients, auditors, or regulators—are particularly concerned with whether any identified misstatements or deficiencies could alter their conclusions or decisions about the quality and reliability of the services being provided. Thus, materiality serves as a critical filter, guiding the focus on issues that genuinely warrant attention and have the potential to affect the economic decisions made based on the SOC report.

Understanding materiality in this way is crucial for evaluating the adequacy of controls and the organization's risk profile. This concept forms a foundation for users in making informed decisions about their relationships with service organizations.