Page 95 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
• Time period can be less or more than 12 months
Step 3: Determine Percentage
• Involves the exercise of professional judgment.
• Generally, there is an inverse relationship between Benchmark & Percentage
• E.g. - PBT from continuing Operation (5%) Low base high percentage.

Total Revenue (1%) High base Low percentage.

(CNO-SA320.040) Financial Statement Level V/S Specific Area Level Materiality
Materiality FST level vs TBD level
• First Determine materiality for FST as a whole. Generally same materiality is applied for TBD.
• In Specific Circumstances, Lower amount of materiality for TBD.
Factors which indicates separate level of TBD Materiality:
• Law, Regulation, FRF requirement affects user expectation of measurement or disclosure.
• Key Disclosures in relation to Industry.
• Attention is focused on particular aspects of business.
Views of TCWG/mgt. Will be useful in determining TBD level materiality.

(CNO-SA320.060) Performance Materiality
Audit is not full proof.
There will be always some undetected misstatements.
Some part of materiality level should be allocated to undetected misstatements.
Audit team will deduct some part of materiality level & allocate it for undetected misstatement, that's called
Haircut.
Remaining materiality level after deduction is of lower amount and this is called Performance Materiality
This performance material is used for risk assessment, deciding NTE of audit procedure, evaluating
uncorrected misstatements.
The audit team will check whether uncorrected misstatement are within performance materiality.
This will ensure total misstatement = uncorrected + undetected are within total materiality.
Audit team will be able to conclude whether FST are free from material misstatements.
EXAMPLE-
10 Crores - Total Materiality Level
3 Crores (30%) - Haircut for undetected misstatement
7 Crores (70%) - Performance materiality for uncorrected misstatement

Suppose FST Level Materiality 10 Crores 10 × 70% = 7 Crores
FST level Performance Materiality
TBD Level Materiality 6 Crores 6 × 70% = 4.2 Crores
TBD level Performance Materiality

(CNO-SA320.080) Relationship Between Tolerable Misstatement and Performance Materiality
Tolerable level of misstatement – is same as - Performance materiality.
But If we are doing sampling for part of the item
E.g.: Only credit sale of last quarter which contributes say 40%
Then, Tolerable level - 40%*PM

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