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Hi Sir Mike!
Are the following benchmarks correct in determining whether something is material to PBT, Revenue, and Total Assets?
In PBT, anything equal to or greater than 5% is considered material.
In revenue, anything equal to or greater than .5% is considered material.
In total assets, anything equal to or greater than 1% is considered material.
Are the benchmarks correct?
So say, a 4.9% of PBT is calculated, is it immaterial to PBT or do we round it off, in which case it is now material?
Thanks a lot!
Kyle0.5-1% of Revenue
5-10% of PBT
1-2% of AssetsAnything above the upper limit- material
Anything below the lower limit – immaterial
Anything between- matter of judgement.This materiality test is ‘by size’ only. There is however another parameter ‘by nature’ where materiality is checked not by numbers but by looking at its substance.
Hopefully it would help your understanding.
Thanks Ram, and congratulations on your promotion to tutor status … ?
Your figures are correct and your observation about ‘by nature’ is also correct. We have the issue of qualitative materiality where, by the very nature of the matter, any error – no matter its monetary value – is material
For example, when disclosing the levels of directors’ remuneration, this should be accurate to the nearest whole number
Kyle, you mention 4.9%
These materiality ranges are there to be used as a guide.
In addition, we have the problem of cumulative materiality where a number of errors that are, in themselves, immaterial could in aggregate be material
It’s highly probable that your 4.9% example could be an integral element of an aggregate error that is material
“0.5-1% of Revenue
5-10% of PBT
1-2% of Assets”These values are guidelines and not written in tablets of stone
OK?
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