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Hi Kim sorry to ask you a basic question but just to make myself clear I think better to ask
Suppose we need to check materialty of item which is financial position item like PPE can we check it’s materiality against profit before tax or strictly we need to check it against total assets only. ( can we do both tests)
Vice versa for P&L Items materiality
Kind regards
Syed razaAt the completion stage, it depends on what the misstatement affects … e.g. if no recognition of impairment of PPE, that affects both total assets and profit or loss … so if you were assessing whether a misstatement needed to be corrected, it might not be material in relation to total assets (say), but you would most likely qualify the audit opinion if it were greater than 10% of profit.
If a misstatement only affects P/L (essentially missclassification) or only affects SoFP – you would consider only against profit and total assets, respectively. And only against revenue if the misstatement affects revenue.
However, at the planning stage, for risk assessment, it is quite usual for the auditor to come up with a $ amount based on the %s of relevant benchmarks. From September 2022, in Q1, the examiner will specify what that that benchmark should be (e.g. in the Specimen, Exhibit 1 says it should be based on profit). Then there will be a professional skills mark for using that materiality benchmark consistently in the risk assessment part of the answer (usually part (a)).
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