Page 96 - AAA Integrated Workbook STUDENT S18-J19

Chapter 73 4

Materiality

Materiality: Misstatements, including omissions, are considered to be
material if they, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements.

Materiality

By size By nature

 ½ – 1 % Revenue  Compliance with laws
and regulations
 5 – 10% Profit
 Compliance with debt
 1 – 2 % Total assets covenants

 Turn a profit to a loss

 Transactions with
directors

 Disclosure notes

Performance materiality is an amount, 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.

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