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    Planmat

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    Ariel Gonzales
    Planning materiality refers to the amount set by auditors at the planning stage of an audit to assess if misstatements, individually or in aggregate, materially misstate the financial statements. Auditors use a combination of quantitative factors like percentages of sales, assets, profits, and equity as well as qualitative factors to determine planning materiality. Planning materiality is then used to calculate performance materiality, which is set lower to allow for expected undetected misstatements during the audit. For example, an auditor set planning materiality at $4,000 or 0.8% of total sales of $500,000 for a company after considering qualitative risk factors.

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    Planmat

    Uploaded by

    Ariel Gonzales
    24 views2 pages
    Planning materiality refers to the amount set by auditors at the planning stage of an audit to assess if misstatements, individually or in aggregate, materially misstate the financial statements. Auditors use a combination of quantitative factors like percentages of sales, assets, profits, and equity as well as qualitative factors to determine planning materiality. Planning materiality is then used to calculate performance materiality, which is set lower to allow for expected undetected misstatements during the audit. For example, an auditor set planning materiality at $4,000 or 0.8% of total sales of $500,000 for a company after considering qualitative risk factors.

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    Planning materiality refers to the amount set by auditors at the planning stage of an audit to assess if misstatements, individually or in aggregate, materially misstate the financial statements. Auditors use a combination of quantitative factors like percentages of sales, assets, profits, and equity as well as qualitative factors to determine planning materiality. Planning materiality is then used to calculate performance materiality, which is set lower to allow for expected undetected misstatements during the audit. For example, an auditor set planning materiality at $4,000 or 0.8% of total sales of $500,000 for a company after considering qualitative risk factors.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    24 views2 pages

    Planmat

    Uploaded by

    Ariel Gonzales
    Planning materiality refers to the amount set by auditors at the planning stage of an audit to assess if misstatements, individually or in aggregate, materially misstate the financial statements. Auditors use a combination of quantitative factors like percentages of sales, assets, profits, and equity as well as qualitative factors to determine planning materiality. Planning materiality is then used to calculate performance materiality, which is set lower to allow for expected undetected misstatements during the audit. For example, an auditor set planning materiality at $4,000 or 0.8% of total sales of $500,000 for a company after considering qualitative risk factors.

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    © All Rights Reserved
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    Planning materiality basically refers to the misstatement amount set by auditors at the planning

    stage of an audit based on the materiality to financial statements.


    Planning materiality used by the auditor to assess whether the misstatement as individual or
    aggregate materially misstated in the financial statements.
    And those misstatements could be misleading the users who use the financial information to
    make the incorrect decision.
    Auditors, as required by international standards on auditing, require to assess the materiality of
    the financial statements at the planning stage. This is normally done by using the combination of
    both the quantitative method and qualitative method.
    Once the auditor identifies and assesses the financial statements’ materiality, then the auditor sets
    the performance materiality (tolerable misstatement) of financial statements. Planning materiality
    must be larger than performance materiality.
    This is because the planning materiality is the materiality amount to financial statements and
    performance materiality is the possible misstatements that expected to have happened in the
    financial statements alone or combine. The following are quantitative factors used to calculate
    planning material.
     0.5% to 1% of Sales Revenue
     1% to 2% of Total Assets
     1% to 2% of Gross profit
     2% to 5% of Shareholders Equity
     5% to 10% of Net Profit
    In calculating planning materiality, the auditor might be taking the highest amount from the
    above factors. For example, higher sales revenue or total assets.
    However, the auditor also needs to understand the qualitative factor of materiality in the financial
    statements of the entity before concluding the size of planning materiality of financial
    statements.
    For example, as per the extract from entity financial statements, total assets amount USD 1,000K
    and total revenues amount USD 500K.
    Based on auditor understanding related to the possible risks that could possibly happen, the
    auditor decides to choose 0.8% of total sales revenue as materiality. Based on this, we get USD
    4K as the planning materiality of financial statements.
    This 4K planning materiality is the amount that set by the auditor to assess the materiality to the
    financial statements during their audit If misstatement is found and the amount is equal to or
    higher than this, adjustment is required.
    By using the 4K of planning materiality, we can calculate performance materiality (tolerable
    misstatements) to financial statements.
    As mention above, the auditor needs to set the performance materiality to less than financial
    statements’ materiality or planning materiality. It is normally calculated by setting the percentage
    of planning materiality. Let say from 50% to 80% for the financial statements that have fewer
    risks to financial statements.
    However, for financial statements that have high risks of misstatement, the performance
    materiality is normally low percentages of planning materiality. In such a case, auditors rank
    from 20% or 30% something.
    Planning material is the materiality to financial statements that auditors set in the planning
    stages. This is the same as the materiality concept in the context of the financial statement.
    Any misstatements or omission that reach planning materiality level required adjustment to
    ensure that the financial statements are true and fair.

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