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