Materiality Calculation
Step1 Choose on which figure to use
- If the current figure is chosen to be used, stat the reason why it’s
selected. E.g current figures are more reliable than the budgeted
figures.
- If the prior year figures are chosen to be used, stat the reason why
it’s selected. E.g they were Fully Audited by the Auditor.
- N/B don’t forget to stat the reason why the other figures are
not selected to be used.
Step2 Determine the appropriate benchmark
- The examples of benchmark to be used, eg it can be profit before
tax, Turnover, Gross profit, Net profit, Total Asset and other. It can
depend on what kind of business.
- Select form the above benchmark that the shareholders and
inventories would be most interested to its.
Step3 Calculate the material range
Examples
- Turnover 1% to 2% of R120 000 000 = R120 000 – R240 000
- Total Assets 2% to 5% of 210 000 000 = R4 200 00 – R10 500 000
- Profit Before Tax 5% to 8% of R10 800 000= R540 00- R864 000
Step4 Determine the appropriate materiality amount
- Stat whether the materiality level is set to be high or low with
reasons.
- Eg If it’s the first time for an Auditor to Audit into a new company,
the materiality range is set to be high.
- N/B don’t forget to state the overall materiality amount to
be the best range.
Step5 Calculate the performance materiality
- Eg if it’s the first time for an auditor to Audit to a new company, the
performance materiality is set to be lower than Planning materiality.
- Performance Materiality should be in between 80% - 90%.
Step1 Choose on which figure to use
- If the current figure is chosen to be used, stat the reason why it’s
selected. E.g current figures are more reliable than the budgeted
figures.
- If the prior year figures are chosen to be used, stat the reason why
it’s selected. E.g they were Fully Audited by the Auditor.
- N/B don’t forget to stat the reason why the other figures are
not selected to be used.
Step2 Determine the appropriate benchmark
- The examples of benchmark to be used, eg it can be profit before
tax, Turnover, Gross profit, Net profit, Total Asset and other. It can
depend on what kind of business.
- Select form the above benchmark that the shareholders and
inventories would be most interested to its.
Step3 Calculate the material range
Examples
- Turnover 1% to 2% of R120 000 000 = R120 000 – R240 000
- Total Assets 2% to 5% of 210 000 000 = R4 200 00 – R10 500 000
- Profit Before Tax 5% to 8% of R10 800 000= R540 00- R864 000
Step4 Determine the appropriate materiality amount
- Stat whether the materiality level is set to be high or low with
reasons.
- Eg If it’s the first time for an Auditor to Audit into a new company,
the materiality range is set to be high.
- N/B don’t forget to state the overall materiality amount to
be the best range.
Step5 Calculate the performance materiality
- Eg if it’s the first time for an auditor to Audit to a new company, the
performance materiality is set to be lower than Planning materiality.
- Performance Materiality should be in between 80% - 90%.
