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Hello!
Here I come again with a question… I have just calculated materiality to answer a past exam question and I got 1,3% of total assets which I assessed as immaterial. This seems to be wrong as the answer says that the amount is material to the statement of financial position.
Would it be possible to define a % of assets/PBT that indicates that the amount in question is material? If 1,3% is material, would 1% of assets still be material? Or is it more a matter of professional judgement?
I am confused.
Thank you!
JustynaFor single rule measurement, the following measures are frequently used:
5% of pre-tax income;
0.5% of total assets;
1% of equity;
0.5% of total revenue.You will notice that these measures are not all profit or loss based, nor financial position based
The rules should be applied as appropriate so that, if we’re looking at a profit or loss item, we’ll measure against profits and / or revenues whereas if the matter is financial position based, we’ll measure against equity or assets
But you have rrived at a figure of 1.3% of total assets.
According to the table above, that 1.3% should be seen to be material
But remember too that different firms use different rules, for example, I believe that KPMG use a rule based on 1.84 * the greater of assets or revenues
Professional judgement? Yes, of course
OK?
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