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Let’s say that you have determined that $10,000 is the materiality level for assets? If a receivable balance were wrong by more than that then the possibility for a material misstatement has to be considered and the error has to be noted for consideration by the audit partner
However, if receivables were understated by $8,000 and depreciation were under-charged by $8,000 and payables were overstated by $8,000, that’s a $24,000 error but individually all three errors are below materiality level so would potentially be dismissed as too small. Yet in aggregate they vastly exceed the threshold
So, for individual elements the materiality value is set at a lower amount to cater for just such a combination of circumstances
Ok?
Is it jst dat you keep the materiality threshold low to cater the above mention situation.
I don’t believe that “borderline materiality” is a technical expression.
Rather it is applied where, for example, we have set materiality levels at $10,000 and we come across an error worth $9,500.
Do we ask for an adjustment to be made or do we leave it because it’s below our $10,000. It’s very close. It’s borderline
Does that do it for you?
Hey Everyone.
I need guidance on how to account for materiality. In Some examples of Exam Kit of Kaplan, I saw that they calculated Materiality upper and lower limited and selected the exact middle value for the materiality. I don’t know if it’s correct.
anyone can please guide on how to mention and write materiality section in Section A of the exam where you are briefing to the Audit Partner and the partner states to calculate the Materiality on benchmark.
If you want to ask “everyone”, Asad, you should use this forum https://opentuition.com/forum/acca-forums/aaa-advanced-audit-and-assurance-forums (rather than this AAA tutor forum).
If you look at 50 mark practice Qs in ACCA’s Study Hub (Qs Connolly, Ted, Dali, Stow, Laurel & Ryder) you will see that there should be clear justifications of materiality chosen – not necessarily “middle” of a range – might be higher end if lower risk or lower end if higher risk (e.g. a new client).
You may also find this posts helpful:
https://opentuition.com/topic/calculation-of-materiality-in-audit-riskHello Teacher,
in Some questions like Eagle Group in Kaplan Exam Kit. The Materiality is asked to be set on Profitability hence it’s calculated. However, when discussing and evaluations of Audit Risk on elements for example: ” Purchase of Lynx. Co – Subsidiary rendered goodwill $ 100 million – it is material to the group and represents 2.9% of the Group Assets”
My confusion is: Do we have to compare with profitability and the balance sheet benchmarks i-e Total Assets ( since goodwill is a part of Asset) or only stating that the amount of goodwill is material as compared to materiality calculated on profit before tax.
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