Performance materiality

If there are 5 audit areas - A, B, C, D and E And performance materiality is $10k you could have undetected errors in each audit area of less than $10k - say $9k in each = aggregate $45k If your overall materiality is $20 you will have to modify the audit plan - reduce performance materiality - and do yet more audit work. That's not efficient. If from the outset you set performance materiality at $4k for each audit area - the aggregate that you fail to detect will be less than $20k. You only need to know that performance materiality is less and understand why - you won't be expected to set performance materaility given overall materiality. In practice this might be simply calculated along the lines here (i.e. overall materiality divided by the # of audit areas) - or it might be different lesser amounts to each audit area depending on their relative risk (the higher the risk - the lower the level of monetary materiality).