Audit materiality calculator

How audit materiality works

1. Overall materiality. (Benchmark + one-off items added back) × the percentage you choose. Pick the figure the accounts’ users read most, usually profit for a company run for profit.
2. Performance materiality. Overall materiality × a lower percentage, so that errors the audit doesn’t find are unlikely to add up to more than overall materiality. More risk, such as last year’s errors or a new system, means a lower percentage.
3. Clearly trivial. Overall materiality × a small percentage. Errors below it are too small to record; everything above it is added up.
4. Material in total. Add the recorded errors. A total at or above overall materiality is material even when every item is below it, and a small error can still be material by its nature.

The international standard, ISA 320, calls materiality a matter of professional judgment, shaped by what users of the accounts need. Its own example is 5% of profit before tax for a profit-oriented manufacturer, and it notes that a percentage of revenue is normally lower; the 1% of revenue it mentions is for a not-for-profit. It sets no fixed percentages, and each firm’s methodology is its own. The defaults here are the worked example’s choices: on Wrenhollow’s case, 5% of $30m gives $1.5m, performance materiality at 50% is $750k, and three errors below $1.5m add up to $1.56m, which is material.