MATERIALITY

Performance Materiality

Materiality should be considered by the auditor when:

3.) Determining the nature, timing and extent of further audit procedures

2.) Identifying and assessing the risk of material misstatements

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1.) Determining the nature, timing and extent of risk assessment procedures

Materiality as a whole

Materiality applied to specifics


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

Materiality is the threshold above which missing or incorrect information in financial statements is considered to have an impact on the decision making of users.

This is the materiality determined at the overall financial statement level. This materiality level helps the auditor determine whether the proposed audit adjustments are significant or not.

This is the amount set by the auditor for particular classes of transactions, account balances or disclosures for which misstatements, well though lover than overall materiality could reasonably be expected to influence the economic decisions of users.

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Steps in calculating overall materiality

Identify appropriate benchmark

Choose approproate percentage to be applied for that benchmark

Factors affecting auditor's judgement

Nature of the entity's business and transactions

Risk Assessment Procedures

Nature and extent of misstatements identified in previous audits

Factors determining specific materiality

Law

AFRF

Regulations