Performance materiality: What’s all that about?

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The new Clarified ISAs, which are effective for the audit of financial statements for accounting periods commencing on or after 15 December 2009, will shortly start to bite (that is for those practitioners who have not adopted the new ISAs early).

Last week, I was lecturing to members of the Society of Professional Accountants (SPA) on how the new ISAs will affect their audit staff, or their practice if they are a sole practitioner. One question which was asked of me both during the lecture and in the break concerned the issue of ‘performance materiality’ and seemed to confuse practitioners.

Performance materiality is a new concept, borne out of the International Auditing and Assurance Standards Board (IAASB) Clarity Project. Audit materiality is certainly not a new concept and auditors have always had to (and will continue to) arrive at a materiality level where an audit opinion is expressed. The confusion (at the present time) lies within performance materiality.

ISA 320 defines performance materiality as: ‘the amount(s) set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole and the amount(s) set by the auditor at less than the materiality level(s) for particular classes of transactions, account balances or disclosures.’

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  • ‘Traditional’ materiality
  • Example scenarios
  • Old versus new
  • The objective
  • Professional judgement

Steve Collings is the audit and technical director at Leavitt Walmsley Associates and the author of ‘The Interpretation and Application of International Standards on Auditing’ (due to publish February 2011). Steve also lectures on financial reporting and auditing issues.

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About Steven Collings


Steve Collings, FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd where Steve trained and qualified.


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By Ashok G
24th Jan 2011 10:55

Performance Materiality

Thanks Steve for the clarity.

Thanks (4)
31st Dec 2015 13:12

Perfomance Materiality

Let say Materiality is 100,000 and Performance Materiality is 75,000. The Auditor finds a misstatement amounting to 90,000 which is not adjusted for in the financial statements. Will it amount to a qualification? ( Qualitative characteristic is ignored)

Thanks (0)