Definition
Audit materiality means that any amount or information is material, if it has the ability to affect the decision of financial statement user.
Types of audit materiality
The materiality can be of two types.
Performance materiality
Performance materiality refers to the materiality of an individual account balance. It’s about assessing whether the individual account balance is material or not. For instance, it can be an account balance related to accounts receivables, accounts payable or inventory etc.
Overall materiality
Overall materiality is about materiality for the complete set of financial statement. Auditors compare cumulative misstatement with the overall materiality to ascertain if financial statements present a true and fair view.
Conclusion for audit materiality
Any amount is material if it can potentially impact the decision of the financial statement user. An amount can be material by amount, nature, and impact. So, auditors need to analyze balances in the context.
Performance materiality is about individual account balance. It helps compare a single account balance with the materiality amount. On the other hand, overall materiality is set at the financial statement level. It’s used to compare cumulative misstatements identified during auditing.n
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