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Sa 320 querry

Ravi Duseja (Article) (132 Points)

13 February 2013

Dear Experts,

a) Please explain me the concept of Performance Materiality ?

How it is determined & its Uses or Purpose for which it is determined ?

b) How materiality is determined Practically in statutory Audit ???

i gone thtrough the relevant SA 320 but i dont expect theoretical answer. Pleasae explain me in Practical how it is determined

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CA Ashish Pathak (Employed at Cipla Ltd.) (2779 Points)
Replied 13 February 2013

Hey Ravi, let me attempt to make you understand the concept of performance materiality. See, the term "MATERIALITY" means important items which may affect the decision of the users of financial statements. This materiality level depends on size (amount) and Nature(violation of law or AS). Materiality is to be considered while planning the audit and also while performing the audit. Performance Materiality is level determined by the auditor which is less than the materiality level. Let us consider this practical example to further understand the concept- suppose the auditor is checking cash book. He sets materiality level as Rs.1200. Now in order to reduce the risk that in fact misstatements do not exceed this materiality level (i.e Rs1200), he sets another level called performance materiality level (which is less than materiality level) say at Rs.700. Now in course of checking the cash book, if the auditor finds misstatements are more than rs700(performance materiality level) then he will perform more indepth checking of cash book to assure that in reality misstatements are not more than rs.1200 (materiality level). Hope this example will help you. Further queries still welcome. Will be more than happy to help you. Regards ASHISH PATHAK

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CA Ashish Pathak (Employed at Cipla Ltd.) (2779 Points)
Replied 13 February 2013

If you are comfortable with hindi then consider my explanation in simple hindi as follow- "Auditor 2 level decide Karega. Performance Materiality Level ko Materiality level se kam rakhega so that auditor apna Shak (doubt) clear kar sake ki sach may kahi misstatements Material level se jyada toh nahi.

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