Auditing performance materiality

How does performance materiality affect financial statements?

These smaller items could be material when aggregated, so the performance materiality level is set to accommodate them

Thus, performance materiality reduces the probability that the aggregate amount of uncorrected and undetected misstatements exceeds the materiality level for the financial statements as a whole

Should a first-time auditor assess performance materiality?

In case of a first-time audit engagement (audit that have been previously audited by a predecessor auditor), it would be dificult for an auditor to assess the factors to be considered for determining performance materiality, as mentioned above, in the absence of previous experience of auditing the entity

×Performance materiality is a concept used in auditing that is closely related to materiality. Materiality is a limit set by auditors above which any misstatements are deemed to affect the decisions of the users of financial statements. Performance materiality is a lower threshold than materiality that allows an aggregate review of misstatements in the company's financial statements. It is set to reduce the probability that the total of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality is also set for particular classes of transactions, account balances, or disclosures. It is sometimes called working materiality as it is a guide for audit team members to perform their work. Auditors usually determine the performance materiality based on the level of risks that are involved in the audit.