Audit Risk and Materiality Threshold using Spreadsheet
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ASB 2/02
CX-4
Index CX-4: FINANCIAL STATEMENT MATERIALITY WORKSHEET FOR PLANNING PURPOSES Company:
Balance Sheet Date:
Completed by:
Date: Instructions
1. This form should be completed for all audit engagements. See Section 203. The purpose of this form is to determine and document the materiality amount that will be considered suitable for audit planning purposes. 2. Use amounts from the financial statements to be audited or the trial balance from which those financial statements will be prepared whenever available. If not available, use annualized amounts from the most recent interim financial statements. For revenue, use an annualized amount even if the period is shorter than a year. 3. When current amounts are unavailable or when significant audit adjustments to client-prepared accounting data are expected, use historical averages based on the past two or three years. (Attach the calculation on a separate page.) 4. Based on your professional judgment, determine a planning materiality amount using the table on the following sheet as a guideline. (Amounts should be rounded to two significant digits.)
Page 1
ASB 2/02
CX-4
Calculations 1. Planning Materiality. (Complete a. and b.) a. BASE AMOUNT (larger of total revenue or total assets) Total Revenue (Annualize if interim amount is used.) Total Assets b. PLANNING MATERIALITY CALCULATION Amount from Table $0
(Percentage from Table 0.00%
+
x
Base Amount) $0
=
Planning Materiality $0
2. Tolerable Misstatement. Tolerable misstatement is used in computing sample sizes and in making other scope decisions. As a rule of thumb, tolerable misstatement can be computed as follows:1 Planning Materiality Amount from Line 1b $0
x
Factor 0.75
Tolerable Misstatement $0
=
3. Individually Significant Items. The dollar amount used to identify individually significant dollar items can be any amount up to tolerable misstatement. CX-7a provides guidance on determining individually significant items for specific account balances or transaction classes.
1 If reliable estimates can be made of uncorrected known misstatement and likely misstatement, tolerable misstatement may be completed as follows:
Planning Materiality $0
-
(Uncorrected Known Misstatement
Page 2
+
Likely Misstatement)
Tolerable = Misstatement $0
ASB 2/02
CX-4
If the Base Amount (larger of total assets or total revenue) is: Over But Not Over $0 $50 thousand $50 thousand $100 thousand $100 thousand $500 thousand $500 thousand $1 million $1 million $5 million $5 million $10 million $10 million $50 million $50 million $100 million $100 million
Example: If the base amount were $3.5 million, then the planning materiality amount would be as follows: $9,500 + (.008 x $3,500,000) = $37,500 Round amount to two significant digits: $38,000 Calculation of planning materiality and tolerable misstatement (as well as completion of audit planning, determining the extent of substantive tests, and computing sample sizes) can be automated using PPC's Engagement Manager. For order information, call (800) 323-8724.
