At the planning stage, the auditor sets a materiality level for the financial statements as a whole. This amount is usually set by professional judgement as a percentage of a benchmark such as profit before tax, revenue or total assets.
Materiality is not only about amounts; matters such as related party transactions or breaches of laws and regulations may be material by nature even if the amount is small.
Source: BDS 320
Related terms
Performance materialityAn amount set below overall materiality to reduce the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality.Audit riskThe risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.Qualified opinionThe opinion the auditor expresses when misstatements, or a lack of evidence, are material but not pervasive.Adverse opinionThe opinion in which the auditor states that the financial statements are not presented fairly, where misstatements are both material and pervasive.Agreed-upon proceduresAn engagement in which the practitioner performs procedures agreed with the entity and, where relevant, a third party, and reports only the findings without providing assurance.Analytical proceduresThe evaluation of financial information through analysis of plausible relationships among financial and non-financial data.
Last updated: October 22, 2026 · This definition is for general information only.