Materiality

Question 1

Framework

Answer 1

1. Which set of financial info to use
2. Bases available
3. Are all bases suitable
4. Calculate possible figures based on suitable bases
5. Decide on materiality figure

Question 2

Which set of financial info to use

Answer 2

Current year-
- Audited
- Non audited
- Budget

Previous year-
- Audited

Question 3

Bases available

Answer 3

Typically
→Revenue
→Gross profit
→PBT
→Assets
→Equity

Question 4

Suitable Bases

Answer 4

-Which component/base represents the company the most and which one will the users be most interested in
-users → shareholders = Dividend, profitability =SCI
→ Bank = profitability and Stability =SCI and SFP
-company → Income driven=sales=scI
→ Manufacturing=PPE=SFP

Stability of base:
-consider
→ Noticeable errors
→ Expected problems → No adjust - be conservative → Actual errors → adjust
SCI:
→ Turnover
→PBT →profit driven company
→Gross profit
→ If PBT is Volatile use most stable base
SFP:
→use the most stable base

Question 5

Calculate possible figures

Answer 5

Calculate
High, middle and low materiality figures based on bases decided on

Question 6

Decide on materiality

Answer 6

Bases on ROMM, decide which the figure in 4 should be used