Calculate Materiality

Set materiality levels for an audit engagement. The system calculates overall materiality, performance materiality, and the trivial threshold based on your chosen benchmark and percentage.

Steps

1. Go to Audit → Materiality in the sidebar.
2. Select a Benchmark:
   • Revenue — typically used for revenue-driven businesses.
   • Total Assets — common for asset-heavy entities.
   • Profit Before Tax — standard for established profitable businesses.
3. Enter the benchmark amount.
4. Set the percentage to apply (e.g., 1-2% of revenue, 5-10% of profit before tax).
5. The system automatically calculates:
   • Overall Materiality — the main threshold for the engagement.
   • Performance Materiality — set at 50-75% of overall materiality, used to reduce the risk of uncorrected misstatements exceeding overall materiality.
   • Trivial Threshold — set at 3-5% of overall materiality, below which misstatements are considered clearly trivial.
6. Review and confirm the calculated amounts.

Tips

• Choose the benchmark that best reflects what users of the financial statements focus on.
• Document your rationale for the benchmark and percentage selected.
• Reassess materiality if circumstances change during the audit (e.g., significant revenue changes).
• Performance materiality is always lower than overall materiality to provide a buffer for undetected misstatements.