Question
Calculate the materiality level of each of the client's below: Client No. Total Assets Total Revenues Materiality Level A P6 million P7 million ? B
Calculate the materiality level of each of the client's below:
Client No.
Total Assets
Total Revenues
Materiality Level
A
P6 million
P7 million
?
B
P50 million
P65 million
?
C
P500 million
P900 million
?
D
P1.4 billion
P1.5 billion
?
Based on the above overall materiality levels, the auditor may consider the overall engagement risk
and the history of booked audit adjustments in determining the percentage for performance
materiality. Assuming based on the auditor's judgment, the following rationale and percentages
have been determined:
Rationale for higher
performance materiality
Rationale for lower
performance materiality
Overall engagement risk
Low
High
History of booked audit
adjustment
Limited to none
Frequent
Fraud Risk
Low
High
Threshold to adopt based on
professional judgment and
understanding of the entity
25% lower than overall
materiality
50% lower than overall
materiality
Compute the Performance materiality for the four clients
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Financial And Managerial Accounting
Authors: Jerry J Weygandt, Paul D Kimmel, Jill E Mitchell
4th Edition
1119752620, 978-1119752622
