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Hi. Good day.
I understand that Performance Materiality reduces the probability that the aggregate amount of uncorrected and undetected misstatements exceeds the materiality level for the financial statements as a whole. It is also a matter of professional judgement. If there are a lot of unusual transactions or misstatements in prior years’ audit, then the Performance Materiality threshold can be set at a lower level to detect those misstatements.
My question is: do auditors still need to set their Performance Materiality threshold if the prior years’ audit concluded that everything is good, and that there is no unusual transaction or misstatement or any other complicated matters? Is Performance Materiality a must in audit (I understand that the Overall Materiality is a must in every audit)?
Thank you.
Short answer yes.
There has to be a materiality level for the performance of an audit. In theory it could be the same as “overall” materiality, but never greater.
Oh I see.
That means in every audit, the Performance Materiality threshold must be determined. The higher the audit risk, the lower the Performance Materiality threshold, and vice versa, just like Overall Materiality, but only smaller?
Thank you.
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