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Hello,
Regarding performance materiality
– I’ve understood that performance materiality is a $ amount set which is below the overall materiality level for each component of the FS
1. What happens when in aggregation we’ve discovered errors greater than performance materriality amount but it is below the overall materiality level
2. Also, what the use of setting an overall materiality level when we can simply set performance materaility amount?
Thanks
See page 33 of the notes:
performance materiality, for “designing and carrying out audit procedures” must be lower “to reduce the risk that misstatements in aggregate exceed financial statement (i.e. overall) materiality”.If there are 5 audit areas (say) and overall materiality is $500k you cannot audit each area only looking for misstatements more than $500k – otherwise you could miss misstatements of $499k in each audit area which collectively could clearly exceed $500k – so you might perform the audit to detect misstatements of $100k in each audit area – so if you find them, then IN AGGREGATE you can assess what needs to be corrected against $500k.
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