ICAEW ARF · Chapter 3 · Question 5 of 13
Overall materiality for an audit is £60,000. The firm sets performance materiality at 75% of overall materiality and treats misstatements below 5% of overall materiality as clearly trivial. What is performance materiality?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) £45,000
Explanation
Performance materiality = 75% x £60,000 = £45,000. It is set below overall materiality to reduce the risk that uncorrected and undetected misstatements together exceed overall materiality. £15,000 is the 25% difference, £3,000 is the clearly trivial threshold (5% x £60,000) and £80,000 wrongly divides £60,000 by 0.75.
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