Question
Audit planning - materiality Can you please explain overall planning materiality, performance materiality and tolerable misstatement and materiality threshold? and provide examples. This topic is
Audit planning - materiality
Can you please explain overall planning materiality, performance materiality and tolerable misstatement and materiality threshold? and provide examples. This topic is really confusing me.
Establish overall planning materiality, The $ amount of materiality, $ deemed material for financial statements as a whole
- Ex. Overall planning materiality - $100,000
- If the whole financial statements are overstated by $100,000 this is material and would affect the decisions of financial statement users.
- This 100k is the amount we have to designate materiality for each account, and then to each line
Performance materiality
- $ amount of materiality at the account level, so a new materiality threshold of $75,000 so we look at ex. inventory
Tolerable misstatement
- Looking at a specific line amount ex. Revenues
- Our materiality threshold is $3,000, this 3k overstates or understates revenues this amount would be material to us
Materiality threshold - the amount of materiality set that would affect the decisions of financial users
- Ex. $10,000 materiality threshold. Revenue is understated by $500 then this is not material
These are my notes, but they don't make sense. If there's a way to make this make sense it would help a lot. for some reason I can't put the pieces together
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