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Sir, can you explain me the difference between preliminary materiality and performance materiality?
Preliminary materiality is usually based on 0.5 – 1% of revenue or 1 – 3% of total assets or 5% – 10% of profit This indicates what is likely to be material to the financial statements.
However, because there is a danger that several relatively small errors add up to something big, performance materiality is set at a lower (more sensitive) level. This is the level of error that are communicated to the audit team and to which they must work and note down any misstatements. Later the partner can decide if these amounts are material to the FS as a whole.
Performance materiality = what’s material in the performance of the audit/audit tests
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