ACCT 107 Lecture Notes - Lecture 32: Financial Statement, Internal Control
21 Oct 2020
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Performance materiality: an amount less than materiality that the auditor uses to plan and conduct the fs audit engagement, to reduce the likelihood that uncorrected errors exceed materiality. To reduce aggregation risk (the risk that aggregate uncorrected and undetected misstatements individually below materiality will exceed overall materiality for the fs) To provide a safety buffer against the risk of undetected misstatements. How much lower pm is than materiality will depend upon the assessed level of the. Romm -> take into account the business and fraud risks, the results of performing risk assessment procedures and the nature/extent of misstatements in prior audits. Auditors set pm as a percentage of overall materiality -> generally recommended to be between 50% (high risk) and 75% (low risk) Pm guides the level of work performed. If it"s too high, the auditor might not perform sufficient procedures to detect. If it"s too low, the auditor may perform more auditor procedures than necessary.
