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Dear sir,
In examiner answer for audit risk, I do not see a separate part calculation of materiality.
In each risk, materiality can be calculated based on PBT or revenue or asset.In “Read the mind of an AAA maker specimen exam Q1”, candidate 1 has a separate part calculation of materiality:
“Materiality is based upon PBT of group. This is calculated as follows
5%-10% of PBT = $4.05m – $8.1m ”
There are 3 marks award for above.
In each audit risk, the candidate 1 only said that upgrade cost is $75m, is material to FS or cost of new ship is $110m, is material to FS.
Can I use approach of candidate 1 into my exam? I see that this approach will save time because I do not calculate materiality (%) for each risk, I just only compare the amount of each transaction with amount of PBT which is material set before.
Thank you.
It is now separate since the introduction of professional skills marks see here https://opentuition.com/topic/materiality-47
Please see also our revision lecture walk-through of this Q1 https://opentuition.com/acca/aaa/acca-aaa-revision-lectures
Please help me to explain why the materiality benchmark of 2 million (lower end of the range) has been set in the Q1 of Pre-Mock Dec’22 ?
The question requires that overall materiality to be based on the profitability.This is a new client.
5%-10% of Gross profit: $3.25 million – 6.5 million
5%-10% of operating profit: $0.6 million – 1.2 million
5%-10% of PBT: $0.4 million – 0.8 million
I do not understand how to calculate materiality benchmark of 2 million?Thank you,
The Mock Exams are no longer available on the CBE practice platform, nor are the videos, and I don’t have the answers.
The thing to remember is that there is no “one right answer” to materiality in Q1, as long as what you come up with is sensible.
When we say, for example, 5%-10% of Gross profit: $3.25 million – 6.5 million, what we mean is:
– less than $3.25m is NOT material (to the financial statements as a whole);
– greater than $6.5m will definitely be consider material;
– in-between, will be a matter of judgement.As this is a new client, I think I would have gone with $1m – as in the 5-10% range of OP rather than GP. A % of OP is more conservative than a % of GP.
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