Performance materiality

All transactions and balances exceeding performance materiality would have to be tested in some way, but not necessarily “sampled”. For example, depreciation expense might exceed performance materiality, but tested with a “proof in a total” (substantive analytical procedure).

Short answer – no. If you selected only the larger amounts that wouldn’t be audit sampling, it would be 100% selection of a subpopulation. Although some types of sampling will guarantee selecting all larger amounts, e.g. MUS, samples must be representative of a population (otherwise it’s not possible to draw valid conclusions) and therefore include smaller amounts. Please see the Audit Sampling chapter for an illustration.

What it says in the hub chapter 10 is:

“All matters that are identified as being material must be subject to detailed audit work
(e.g. tested in detail). The auditor must then use his judgment in dealing with the
remaining items (e.g. sampling or analytical procedures).”

Suppose performance materiality is $250k and PPE includes six properties with carrying amount exceeding $250k – the auditor must test them all – 100% is not sampling.

Tests of details on the properties might include inspecting them (all) and examining invoices for an additions to cost (a sample might be suitable for this).

Sampling is only suitable for larger populations. Look at Activity 2 in the Study Hub Chapter – selecting all (100%) of the largest balances is not sampling.

If you’re looking for a “rule”, I would say the opposite – that all items above performance materiliaty must be tested (with tests of details).

If performance materiality is $25,000, say, the auditor must obtain sufficient appropriate audit evidence that every individual transaction and account balance that is $25,000 or more is not materially misstated. This can only be ascertained by testing them.

Right!