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Querist : Anonymous

Querist : Anonymous (Querist)

30 October 2010 sir can u explain me with a simple example abt performance materiality in audit materiality standard.

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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30 October 2010 Planning the audit solely to detect individually material misstatements overlooks the fact that the aggregate of individually immaterial misstatements may cause the financial statements to be materially misstated, and leaves no margin for possible undetected misstatements.

Performance materiality (which, as defined, is one or more amounts) is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole. Similarly, performance materiality relating to a materiality level determined for a particular class of transactions, account balance or disclosure is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in that particular class of transactions, account balance or disclosure exceeds the materiality level for that particular class of transactions, account balance or disclosure.

The determination of performance materiality is not a simple mechanical calculation and involves the exercise of professional judgment. It is affected by the auditor’s understanding of the entity, updated during the performance of the risk assessment procedures; and the nature and extent of misstatements identified in previous audits and thereby the auditor’s expectations in relation to misstatements in the current period.

Querist : Anonymous

Querist : Anonymous (Querist)

30 October 2010 sir can u explain me in a numerical example as u written above is same written in various text books.

CA Deepak Bora

CA Deepak Bora (Expert)
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16 May 2020 You can go through the entire text along with free videos of performance materiality, uncorrected and undetected misstatements at www.deepakbora.com

If you have any questions please feel free to contact me via queries

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