ICAEW ARF · Chapter 3 · Question 4 of 13
An audit firm sets overall materiality at 5% of profit before tax. A client's draft profit before tax is £840,000. What is overall materiality?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) £42,000
Explanation
Overall materiality = 5% x £840,000 = £42,000. £84,000 would be 10% of profit, £4,200 would be 0.5% and £21,000 would be 2.5%. The benchmark and percentage are a matter of judgement, and the auditor would revise materiality if the final profit figure changed significantly.
More Planning, materiality and risk assessment MCQs
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