ACCA AA · Chapter 6 · Question 6 of 11
Why does ISA 320 require the auditor to set performance materiality at an amount lower than overall materiality?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) To reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality
Explanation
Testing to overall materiality would leave no margin for undetected misstatements or for individually immaterial misstatements that add up. Performance materiality creates that margin. The clearly trivial threshold is a separate, much lower amount, and modification decisions are made against overall materiality.
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