Performance materiality is used to determine the extent of audit procedures and sample sizes. It is usually set as a percentage of overall materiality, taking into account the company's control environment and misstatements identified in previous years.
For companies with a weak control environment or many adjustments in previous years, performance materiality is set lower, which means more audit work.
Source: BDS 320
Related terms
MaterialityA misstatement being large enough, individually or together with others, to influence the economic decisions of users of the financial statements.Audit samplingApplying audit procedures to some rather than all of the items in an account or class of transactions in order to reach a conclusion about the whole population.Audit riskThe risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.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.