Materiality: Performance Materiality – CPA Exam Definitions

Materiality Performance Materiality CPA Exam

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Materiality: Performance Materiality

Performance materiality, also referred to as tolerable misstatement, is a concept used in financial statement audits. It represents the maximum amount of misstatement or error in a specific account balance, class of transactions, or disclosure that an auditor is willing to accept without considering the financial statements to be materially misstated. Performance materiality is derived from the overall materiality threshold calculated for the financial statements as a whole and is usually set at a lower level.

Performance materiality serves several purposes in a financial statement audit:

It is essential for auditors to exercise professional judgment when determining performance materiality levels for each account balance, class of transactions, or disclosure. This judgment should consider the overall materiality threshold, the assessed risks of material misstatement, and the specific circumstances of the entity being audited.

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