While doing audit of consolidated financial statement we have to determine group level materiality. So say profit whole group is 100 crore x 5% = 5 Crore is materiality.
1. Now for checking consolidation adjustments, permanent or current we will use this materiality level. to decide how much NTE for such items and also whether any misstatement is material
2. it is also use for scope in / scope out, all components (Sub / Ass / JV) who are have balance sheet size below this limit will be scoped out (left out) , further judgement is also used whether to include some components even below limit.
components which are selected are called scoped in which left out are called scoped out. we dont perform specific audit procedures for these, unless required.
3. But if any component gives modified opinion or EMP it will be included in report of parent company irrespective of whether it is material or not. so this content is from guidance note on consolidation. which is little different from requirement of SA 600