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Performance materiality

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Performance materiality

  • This topic has 3 replies, 3 voices, and was last updated 10 years ago by lwitiko.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • September 3, 2014 at 5:08 pm #193517
    pagermm
    Member
    • Topics: 13
    • Replies: 13
    • ☆

    1 the amount or amounts set by auditor at less than materiality for financial statements as a whole to reduce to an appropriately low level
    the probability that the aggregate of uncorrected & undetected misstatements exceeds materiality for the financial statements as a whole.

    How to understand this ? Thanks.

    September 3, 2014 at 7:54 pm #193548
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10589
    • ☆☆☆☆☆

    Let’s say the profit is $1M. The materiality guides based on profit are 5 – 10% of profit; let’s take 10% ie $100,000. So any error found that’s greater than $100,000 is prima facie material.

    However, what if electricity costs were understated by $60,000 (not of itself material) and repair costs understated by $70,000 (again, not material). The combined effect on profit would be to overstate it by $130,000 (ie $60,000 + $70,000).

    Performance materiality therefore sets materiality levels lower than they might otherwise be to try to trap aggregate errors. Here, the auditors might set performance materiality at $50,000 (though there is no really scientific way of deciding that.

    September 4, 2014 at 1:18 am #193574
    pagermm
    Member
    • Topics: 13
    • Replies: 13
    • ☆

    Very clear explanation. Thank you so much

    September 9, 2014 at 2:19 am #194378
    lwitiko
    Member
    • Topics: 12
    • Replies: 51
    • ☆☆

    Thank you Mr Gromit

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