3.1 - Performance Materiality

Question 1

What does the concept of performance materiality focus on?

Answer 1

The difference between the level of tolerable misstatement and the level of actual misstatement detected

Question 2

Thinking in terms of performance materiality means thinking of…

Answer 2

What the effect of individual misstatements might be on audit risk for the financial statements as a whole

Question 3

Thinking this way provides the auditor with what?

Answer 3

A margin of safety in relation to any undetected misstatements, which are less than likely to exceed materiality as a whole

Question 4

The higher the assessed risk…

Answer 4

The lower the performance materiality must be set

Question 5

What does a low performance materiality mean for the auditor?

Answer 5

More work

Question 6

What does setting performance materiality involve the use of?

Answer 6

Professional judgement, which takes into account qualitative aspects, such as the level of risk attached to a particular balance in the financial statements