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Chapter 4 3 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

Performance materiality is an amount set at less than materiality for
the financial statements as a whole, to reduce the risk that the
aggregate of smaller misstatements in individual account balances or
classes of transactions could exceed materiality for the financial
statements as a whole.

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