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hi sir,
can i know the difference between materiality and perfomance materiality ? Infact i know both of their definitions but not able to sort out the difference . Hope you will help .Materiality of financial statements as a whole is calculated based on the very balances we see in financial statements e.g total assets ,revenue ,profit after tax and so on.The auditors’ worry is some misstatements may be embedded in the financial statements even though financial statements look ok.Therefore in order to reduce the probability that the aggregate of these undetected or uncorrected misstatements exceed materiality of financial statements as a whole , auditors set materiality figure below the materiality of financial statements as whole .Thats what performance materiality is .In one of my recent conversations with an auditor general of this country, he mentioned that usually they would set performance materiality at 60%_70% of materiality of financial statements as a whole .So the only difference is materiality of financial statements as whole is calculated from the very balances (original) in financial statements but performance materiality is calculated from the former setting it below that level for the reason I have stated.Let Mr .Gromit answer you but these are findings .
That’s it. There is a particular worry about the possibility of several immaterial errors adding up to be material, so performance materiality is set lower than ‘initial’ materiality guidelines.
Think about the term ‘performance materiality’. What might be material (noteworthy) in the performance of the audit is lower than what might be material for the financial statements.
so iin conclusion materiality is not set by the auditor and the perfomance materiality is set by the auditor which will be less than the materiality .
Am i correct ?Both are set by the auditor because the auditor does not want to sign off accounts that have a material misstatement. Performance materiality is lower – just to be safe.
materiality will be for the financial statement as whole say 5% and perfomance materiality for each headings in the financial statement say for ppe 3% cuurrent asset 2% etc . is it ?
I don’t know where you get your % from – perhaps they are only examples. The guidelines for materiality are:
0.5 – 1% of turnover
1 – 2% of total assets
5 – 10% of profit.Performance materiality might be set with reference to:
0.25 – 0.5% of turnover
0.5 – 1% pf total assets
2.5 = 5% of profit.My 50% adjustment is only for illustration, but performance materiality is stricter than materiality for the FS as a whole.
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