What is Materiality?

Definition: Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of financial statements. The auditor keeping in view the concept of materiality gives his opinion i.e. whether the financial statements present fairly in all material respects the financial position and performance of the entity.

What is Performance Materiality?

Performance materiality means the amount or amounts 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.                                    

If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures. Performance materiality recognizes the fact that errors/omissions detected in a particular area may not breach the overall materiality level but when all the errors/omissions in all the areas is combined or added together, the overall materiality could be breached.

Tolerable misstatement and performance materiality

A Tolerable misstatement is a monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population.
Performance materiality means the amount or amounts 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. Performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures.

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