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Hello,
When assessing materiality, is a misstatement considered material when the materiality percentage is between the lower and upper limits? When I first gone through the syllabus, I understood that up to the upper limit the misstatement was not material and so, it is material if > upper limit. The below question made me hesitate.
In Kaplan’s revision kit there is the following question:
Profit before tax: $7.5 million
Lawsuit settlement figure: $0.6 millionQuestion: Calculate the materiality level of the settlement figure for the lawsuit by reference to profit before tax and state whether it is material.
Calculation: 0.6/7.5*100%=8% (between 5% and 10%)
Answer: Material.Thank you.
Regards
Paula
The range eg 5% to 10% is where things start to be material. Think of it as
>10% definitely material
>5% befinning to become material.For your questions, focus onmthe lower limit, for caution.
Note that materiality also depends on the nature of the misstatement, so an error in director’s emoluments would be material even if very small.
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