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How do you determine if an amount is material? For example in a case where a finance director was dismissed and is now suing the company.
“The HR director told you that XYZ Co’s lawyers believe that the finance director’s claim is likely to be successful, but estimate that $150,000 is the maximum amount of compensation which would be paid.”
Profit before tax $ 6.5 Million
Revenue $ 66 MillionSo at 2.3% of profit before tax and 0.2% of revenue, I think, in my professional judgement, the claim is MATERIAL in relation to profit but ACCA examiner thinks otherwise.
(ACCA September 2016 sitting question 10)
General rule of thumb is materiality to be set at 5% – 10% of profit before tax, or 1% – 2% of revenue. The above claim is not material.
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