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Following on your last reply,
so if materiality for PBT is lower than 5% or higher than 10% does that make it immaterial?
If an error is discovered that is less than 5% that would normally / traditionally be treated as immaterial
If it’s higher than 10% … stand back and watch all the bad stuff hit the fan!
The reason that there is a range of values / percentages is to give flexibility and allow audit partners to exercise judgement
The partner sets the level and the level that is set depends upon a number of other factors such as assessment of strengths in control systems and the likelihood that audit testing will fail to detect errors
Remember, these percentages are determined at planning stage by the partner in charge based on the initial assessment of the controls within the client company and the existence of matters of inherent risk
Where inherent risk is perceived to be low and control systems have proved in the past to be strong, the auditor is potentially justified in raising the bar for detection risk and setting materiality level towards the higher end of the 5% – 10% range thus reducing the extent of detailed testing whilst still remaining within the pre-determined materiality bounds
Is that any better?
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