Materiality

Question 1

Normalized Income Before Tas

Answer 1

3% - 7%

Question 2

Revenues or Expenses

Answer 2

1% - 3%

Question 3

Total Assets

Answer 3

1% - 3%

Question 4

Equity

Answer 4

3% - 5%

Question 5

Revenues or Expenses

Not-for-Profit

Answer 5

1% - 3%

Question 6

Total Assets

(Not-for-Profit

Answer 6

1% - 3%

Question 7

Normalizing Items

Answer 7

1. unusual or non-recurring revenue or expenses
2. special management bonuses
3. unusual gains or losses on the disposition or PP&E

Question 8

Performance Materiality (PM)

Answer 8

considers the amount of audit work required to ensure that the identified and potential unidentified misstatements will not exceed overall materiality - auditor focused

60% - 80% of overall materiality

provides a cushion so immaterial misstatements do not exceed overall materiality

if risk of material misstatement is higher - use a PM on the lower end of the range - increasing the sensitivity to potential misstatements

Question 9

Specific Materiality (SPM)

Answer 9

where there are balances or classes of transactions where an amount less than overall materiality would influence or change the decision or a known user

address specific risks and balances in sensitive audit areas