Professional Review and
Training Center (PRTC)
Determining Materiality
(AT.2506)
Leomar R. Cabarles
Concept of Materiality
Materiality and Auditor’s Objectives
Reasonable
assurance
Auditor
IAR
F/S
free from material
misstatement
Materiality in Audit
Smallest aggregate misstatement
Could be material
To any one of the F/S
Materiality vs. Other Concepts
Materiality
Audit Risk
Audit Procedures
Audit Evidence
Materiality Levels
Benchmark and Percentage (%)
• Benchmark = F/S
information which users
base on in decision
making
• Percentage (%) = level
of misstatement judged
to be material
Users’ information needs drive materiality
Particular F/S Items Materiality
• For specific items that would
influence users’ economic
decisions
• Examples:
 RPT
 Remuneration of
MGT/TCWG
 Key disclosures
 Particular business aspect
Performance Materiality
• Less than F/S materiality
• Two purposes:
 Allow aggregation of
immaterial amounts
 Provide margin for
possible undetected
misstatements
Performance Materiality
• Used to:
 Assess ROMM
 Determine FAP
• Possible approaches:
 One PM level, or
 More than one PM level
Revision of Materiality
• Adjust for:
 Changes in circumstances
 New information
 Change in understanding
• Consider adjustment audit
scope
Not a materiality; rather, a cutoff for
unimportant misstatements
Materiality Levels and CTMT Summary
D
O
C
U
M
E
N
T
E
D
Whole F/S Items
Materiality
Particular F/S Items
Materiality
Performance
materiality
Performance
materiality
(Tolerable
Misstatement)
(Tolerable
Misstatement)
Clearly trivial misstatement threshold
Professional Judgment
U
P
D
A
T
E
D
Application of Materiality
• Material accounts/disclosures
F/S Level Materiality = P24,000
Application of Materiality
• Material accounts/disclosures
• RAP
• FAP
• Effect of uncorrected misstatements
• Form opinion
• Concept of materiality
• Materiality and
the auditor’s objectives
• Materiality in Audit
• Materiality vs. Audit Risk,
Procedures, Evidence
• Materiality levels and CTMT
• Application of materiality
-now do the DIY drill-
DIY Drill Answers
1. B
2. A
3. B
4. D
5. D
DIY Drill Answers
6.
7.
8.
9.
10.
B
D
A
D
B
DIY Drill Answers
11.
12.
13.
14.
15.
D
B
A
D
D
 end of AT.2506 