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how to calculate materiality and performance materiality?

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how to calculate materiality and performance materiality?

i know it is a professional judgement made by auditor, but what's the benchmark % or base date for computing materiality and performance materiality? can someone also give an easy to understand definition of performance materiality?

May 28th 2014 AN ACCA USER 1,180 Points

6 Replies

+1 Vote
There are straight Forward Questions on Materiality such as definition and a little explanation.

An example is of a Question regarding Audit Opinion and its Modification or Going Concern. (Scenario Based Question) . You could be asked to explain/discuss/Review the impact of materiality on going concern and Audit opinion.

For further Example look at Question 5 (June 2011). That might help you in regard of question solving and Exam question examples.

Good Luck!!
May 31st 2014 AN ACCA USER 700 Points
0 Votes

According to ISA 320 Materiality (Quantitative Factors)

5% of Profit before tax.
1% of revenue.
Total Assets 1-2%.

Performance Materiality

The amount(s) set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole and the amount(s) set by the auditor at less than the materiality level(s) for particular classes of transactions, account balances or disclosures.

Easy Version: Applied where many transactions combine to form material. Normally set at a level lower then overall materiality. It is used for testing individual transactions,account balances and disclosures.

May 29th 2014 AN ACCA USER 700 Points
0 Votes
further, once the % is calculated, how it is applied? can you give an example?
May 31st 2014 AN ACCA USER 1,180 Points
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Thank you Saad, the example has been very helpful.
May 31st 2014 AN ACCA USER 1,180 Points
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the isa never stated the benchmarks. correct me if am wrong. the benchmarks given above are traditional benchmarks. in determining whether or not an item is material is dependent on the auditors professional judgement

October 8th 2014 AN ACCA USER 150 Points
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February 24th 2017 AN ACCA USER 17,840 Points
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