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Can any one tell me the difference between component materiality and component performance materiality.
This was causing a lot of confusion in my class when I took F8, so you’re not alone.
When we talk about setting a materiality level for the financial statements as a whole, we are setting a percentage of tolerable misstatements e.g level of misstatement should not exceed 5%.
When we talk about performance materiality, we are setting a materiality level for individual accounts e.g sales receivable account should not exceed 5%.
Performance materiality are set for all the different accounts individually, and then they will aggregate to form an overall materiality level for the financial statements.
Hope this helps, but it might be best to ask the lecturer for a better explanation.
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