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Hello Mike,
I am reading the sample answer to the question, and I am confused on the below regarding materiality.
“The year end provision represents 0.36% of total assets and 6.54% of profit. It is not, therefore, material to the statement of financial position but material to the statement of profit or loss.”
My question is “the year end provision balance ($7m) is a balance sheet item, why the sample answer divided it by profit (ie. 7/107) and to determine the materiality (6.54%) to profit?”
Thank you.
Regards,
MarthewWere that provision not to exist, profit for the year would increase by 6.54% … and that’s material
Many figures appear both on the statement of financial position and are involved witht he statement f profit or loss
For example:
Inventory
Depreciation
Provisions for doubtful debts (and other provisions)
Accruals and prepaymentsThe application of calculations to determine materiality can (and should) consider the affect on all statements that are affected by the matter in hand
OK?
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