Guidance
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The Audit Materiality Calculator is used to determine the overall financial statement materiality for the audit of financial statements as per the International Standards on Auditing (ISA). Information is generally considered to be material if omitting, misstating, or obscuring it could reasonably be expected to influence the decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.
Overall Materiality:
Ref:ISA 320.10, ISA 320.14
the auditor should use professional judgment to determine the highest amount of cumilative misstatement(s) that could be included in the financial statements without affecting the economic decisions taken by a financial statement user.
When establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole. –ISA 320
The auditor shall include in the audit documentation the following amounts and the factors considered in their determination:
(a) Materiality for the financial statements as a whole;
(b) If applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures;
(c) Performance materiality; and
(d) Any revision of (a) – (c) as the audit progressed. –ISA 320
Note: If overall materiality is lower than in previous audits, consider whether misstatements may exist in opening balances.
Performance Materiality:
Ref: ISA 320.11, ISA 320.14
Performance materiality is used so that the aggregated misstatement(s) may not exceed overall materiality
Set performance materiality at an amount(s) that is based upon, but lower than, overall materiality (such as between 60% and 75% of overall materiality). Use professional judgment about expectations of misstatements that could arise in the current period. Consider the business and fraud risks identified, the results of performing risk assessment procedures and the nature/extent of misstatements identified in previous audits.
For the purposes of the ISAs, performance materiality means 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. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures. –ISA 320
Trivial Amount:
Ref: ISA 450.15
This is the amount below which misstatements would be clearly trivial and not considered by the auditor in accumulating the detected misstatements
Other Considerations:
There might be circumstances where misstatements lower than the overall materiality levels in one or more particular classes of transactions, account balances or disclosures may affect the decisions of the primary users, the auditor needs to consider setting lower materiality threshold for those particular classes of transactions, account balances or disclosures.
If, in the specific circumstances of the entity, there is one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements, the auditor shall also determine the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures. –ISA320