A recent graduate tells you, "I normally set materiality at 5 percent of net profit. However, I set it at negative \(\$ 50\) million for a company that made a huge loss, and at \(\$ 5\) for a non-profit organization that has an objective of breaking even. But then the partner in charge changed my materiality figures totally!" Explain how materiality is defined in accounting and auditing standards, and why the recent graduate made a mistake in judgment.