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i need to know how to set materiality when performing an audit

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June 17th 2014 AN ACCA USER 170 Points

2 Replies

+1 Vote

The determination of materiality is a matter of professional judgement, with information generally deemed to be material if its omission or misstatement could influence economic decisions taken by the users of the company's financial statements. It is set at the lower of a percentage of Revenue and Net Assets, usually between 0.5-3% ( percentage determined by professional judgement).

Example,

Revenue 100,000 ( Using 1% to measure materiality, based on professional judgement of audit risks specific to the company, its industry etc)
Net Assets 70,000 ( Using 0.5% )

Revenue Materiality - 1,000
Asset Materiality- 450

Materiality would be set as the lower of these two figures, in this case being 450.

I've worked as an auditor from April 2012 to April 2014.

July 17th 2014 AN ACCA USER 160 Points
0 Votes

Generally speaking, 0.5-1% of revenue, 5-10% of profit before tax, 1-2% of total assets. However, it also depends on the business charateristics of the entity, the identified potential risk area and its past audit issues. I do not have audit experience and the above knowledge is learned from F8

June 20th 2014 AN ACCA USER 260 Points
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