SA 320 – Sir agar assertion level pe i decide for a materiality for depreciation account at 25L and performance materiality of 8L for each txn related to depr..and i find 2 txns of 10L each..so as the performance materiality level is exceeded but not the main materiality level of 25L should i consider it as material or not now? ( i feel like to consider or not to consider depends upon each auditor’s professional judgement and some may consider it as performance materiality is exceeded but some may not consider it as matriality level for depr of 25L is not exceeded..pls guide me whether my view holds correct or is it incorrect sir?)
First of all generally there is one financial level materiality for all transactions & balances. We can have lower materiality for specific area say depreciation. So now we have 25 lakhs as specific transaction level materiality, and performance materiality is 8 lakhs.
We have to see misstatements individually and in aggregate also. In our case in aggregate it is 20 lakhs. It is exceeding performance materiality but not regular materiality.
Performance materiality is for detected misstatements, gap of 25-8 = 17 is for undetected misstatements.
As 20 lakhs is crossing 8 lakhs we will have to modify our report.
Point is we dont know undetected misstatements and for that we have created gap let that gap be for unknown things. We should compare limit for known misstatements and limit for known misstatements that is 8 lakhs