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Common measures for initial assessment of materiallity are:
0.5-1% of turnover
5-10% of Profit
1-2% of assetsBut
example: A company do not provide for depreciation on its PPE ( $25,000 depreciation should be charged)
PBT=$250,000
PPE= 2.5mHence calculation of materiality is 25,000/250,000=10% of profit and 25,000/2.5m=1% of PPE
Is it MATERIAL to the FS? ( I mean it is exactly the same percentage as benchmark .. this mean that this is material or not?)
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the materiality limit is 1% of gross revenue or 5% of PAT(Profit after tax)
so this should be material
this said … it depends upon the environment of the entity whether it is material or not… also auditor’s judgement comes into play
the auditor can set the performance materiality limit .. revised ISA 320
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