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With regards to calculating materiality in practice other factors such as client knowledge and qualitative information will be considered, how do you calculate the simple average when you are using traditional indicators.
Eg.
Revenue (.5% to 1%) 12.67 25.34
PBT (5%) 3.05 0.0
Total Assets( 1 to 2%) 10.09 20.18
Net Assets (2 to 5%) 7.36 18.4
Total 33.17 63.92Would you simply divide by 4 to get an average of 8.4 & 15.98?
If so which set do you use to define materiality?
Apologies if this is a stupid question.
Have you missed a PBT figure?
I don’t think this is a stupid question!
The value from within the range is dependent upon your assessment of risk. The greater the risk in your perception, the lower the values selected
When I was active as an auditor, the materiality of a matter was gauged against the benchmark figure. Thus, if it were an expense that was being considered, any misstatement was measured against the profit. If it were a potential error in revenue, materiality was measured against revenue and / profit
However, I believe that nowadays an average value is taken (though personally I fail to see how that can work) For example, an error could be found, in your illustration, with a value of 8. That’s below your lower limit in the averages. But if the error with a value of 8 had an impact on pbt, it clearly would be material (in your example)
Does that help?
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