ASA 320 requires the auditor to consider performance materiality[72] when determining the nature, timing and extent of financial audit procedures, and ASA 450 requires the auditor to consider materiality when evaluating the effect of misstatements identified during the audit. Similarly, under ASAE 3100, the auditor considers materiality when planning and performing the compliance engagement and in assessing any compliance breaches identified. Information is material if its omission, misstatement or non-disclosure has the potential to adversely affect decisions made by users of the report. An auditor’s consideration of materiality is a matter of professional judgement and is affected by the auditor’s perception of the information needs of users and the level of audit risk.


The auditor’s preliminary assessment of materiality is based on qualitative and quantitative factors. Similarly, when assessing the outcome of audit procedures, including the materiality of misstatements identified in the financial audit or contraventions identified in the compliance engagement, the auditor considers both their amount (quantitative) and nature (qualitative).


Materiality differs in nature between a financial audit and a compliance engagement and is discussed separately within Part A (paragraphs 171 to 174) and Part B (paragraphs 315 to 316), respectively, of this Guidance Statement.


Performance materiality refers to the amount or amounts set by the auditor at less than materiality for the financial report as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial report as a whole. Performance materiality may also refer to the amount or amounts set by the auditor for particular classes of transactions, account balances or disclosures.