- Materiality guidelines can be derived by answering the following questions:-
- Who are the relevant users of the financial information?
- What are their decision making needs?
- For a given item, what is the appropriate context for assessing its materiality?
- In what range of values do items become critical in terms of materiality?
- How should particular items in these critical ranges be decided and reported?
The auditor should also consider:-
- Is the item so fundamental that the accounts can no longer be said to give a true and fair view?
- Materiality is a relative factor and the item must be considered in relation to the accounts as a whole, the total of which it would form part and the corresponding amount in the previous years.
- Some items are capable of exact calculations others like depreciation are merely estimated and providing the estimate is reasonable, should be acceptable.
However, it is generally accepted that:-
a) Errors over 10% are material
b) Errors between 5 – 10% may be material
c) Errors under 5% may not be material.