Audit materiality worksheet

NPO-CX-2.1

Index

NPO-CX-2.1: Financial Statement Materiality Worksheet for Planning Purposes

Statement of Financial Position Date:

PPC Guide Organization: ERROR:#NAME? ERROR:#NAME?

Links

Completed by: Date:

Instructions: The purpose of this form is to determine and document the materiality amount that will be considered suitable for audit planning purposes. Review the guidance in section 306 before completing this form. NPO-CX-2.3 should be used to determine major programs' materiality for an audit of federal award programs. When determining planning materiality:

Section 306

NPO-CX-2.3

1. Use amounts from the financial statements to be audited or the trial balance from which those financial statements will be prepared. If not available, use annualized amounts from the most recent interim financial statements. For total support an revenue, use an annualized amount even if the audit period is shorter than a year. When using estimated amounts, take into account the effects of known or expected changes, including significant transactions or adjustments that are expected at the end of the period.

2. When current amounts are unavailable, significant audit adjustments are expected, or significant changes in the entity's circumstances indicate that current amounts are not representative of the entity's results of operations or financial position, use historical averages based on the past two or three years. (attach the calculation on a separate page) or, if considered reliable, the organization's annual budget.

3. If using a computation base of the larger of adjusted total assets or adjusted total support and revenue:

a. Adjust total assets by excluding interfund receivables, assets held on behalf of others, and any fixed assets not subject to depreciation.

b. Adjust total support and revenue by excluding additions for assets not subject to depreciation (such as donated land recognized as support).

Section 306 4. Choose a benchmark that you think is most appropriate to the entity. Section 306 provides lists of factors to consider in selecting a benchmark. The following tables may be used as guidelines.

Table 1—Benchmark Is Adjusted Total Assets or Adjusted Total Support and Revenue

If the Benchmark Amount is: Planning Materiality is: Max amount of range $ amount % rate

Over But Not Over Base Amount + (Percent x Benchmark) 0 - 4.00%

$0 $100,000 0 + 4.0% 100,001 2,500 2.00%

$100,000 $500,000 2,500 + 2.0% 500,001 8,500 1.00%

$500,000 $1,000,000 8,500 + 1.0% 1,000,001 10,000 0.90%

$1,000,000 $5,000,000 10,000 + 0.9% 5,000,001 16,000 0.80%

$5,000,000 $10,000,000 16,000 + 0.8% 10,000,001 28,000 0.70%

$10,000,000 $50,000,000 28,000 + 0.7% 50,000,001 88,000 0.60%

$50,000,000 $100,000,000 88,000 + 0.6% 100,000,001 185,000 0.52%

$100,000,000 $500,000,000 185,000 + 0.52% 500,000,001 610,000 0.45%

$500,000,000 610,000 + 0.45%

Example: If the benchmark amount were $3.5 million, then the planning materiality amount using Table 1 would be as follows:

$10,000 + (.009 x $3,500,000) = $41,500, rounded down to $41,000

Table 2—Other Benchmarks and Illustrative Percentages

Benchmark Illustrative Percentage

Adjusted total support and revenue/adjusted total assets 1/2%–1%

Total expenses 1%–2%

Changes in net assets 3%–5%

Total net assets 1%–2%

Decisions and Calculations

1. Basis for Materiality Amounts. Considering the needs and expectations of financial statement users, describe the rationale for the selection of the benchmark and percentages in steps 2-4.

2. Planning Materiality. (Complete a. and b.)

a. BENCHMARK AMOUNT. (Select the benchmark you wish to use.)

Total Revenue (Annualize if interim amount is used.)

Total Assets

Other Benchmark (specify)

b. PLANNING MATERIALITY CALCULATION (Note: If an Other Benchmark amount is used, a suitable percentage should be manually entered.)

Base Amount from Table +

user: Applicable only if Table 1 is used to calculate materiality. (Percentage from Table or Suitable Percentage for Chosen Benchmark x Benchmark Amount) = Planning Materiality

gcrist: Round down to two significant digits. For example, $37,500 would be rounded to $37,000; $257,000 would be rounded to $250,000, etc. Consider whether calculated amounts (planning materiality or performance materiality/tolerable misstatement) appear reasonable based on your experience with the client and any user expectations.

$0 0.00% $0 $0

NPO-CX-8.2

NPO-CX-8.1 3. Performance Materiality/Tolerable Misstatement. Tolerable misstatement is the application of performance materiality to a particular audit sampling procedure and may be the same as performance materiality (see section 702). Tolerable misstatement is used in computing sample sizes (see NPO-CX-8.2) and in making other scope decisions (see NPO-CX-8.1). Performance materiality/tolerable misstatement can be computed as follows:

Section 702

Section 306 Planning Materiality Amount from Line 2b x Factor =

user: A common rule of thumb is to calculate performance materiality/tolerable misstatement as a fraction between 50% and 75% of materiality at the financial statement level (and materiality for items of lesser amounts, if applicable) with the percentage being increased from 50% as the likelihood of uncorrected and undetected misstatements decreases. See section 306. Performance Materiality/Tolerable Misstatement

gcrist: Round down to two significant digits. For example, $37,500 would be rounded to $37,000; $257,000 would be rounded to $250,000, etc. Consider whether calculated amounts (planning materiality or performance materiality/tolerable misstatement) appear reasonable based on your experience with the client and any user expectations.

$0 $0

Section 306 4. Lower Level of Planning Materiality for Particular Items. Identify any financial statement accounts, transaction classes, or disclosures for which a lower level of materiality should be used and apply professional judgment to determine an appropriate planning materiality and performance materiality/tolerable misstatement amount for those items. See section 306.

Financial Statement Item Planning Materiality Performance

gcrist: Round down to two significant digits. For example, $37,500 would be rounded to $37,000; $257,000 would be rounded to $250,000, etc. Consider whether calculated amounts (planning materiality or performance materiality/tolerable misstatement) appear reasonable based on your experience with the client and any user expectations.

Materiality/Tolerable Misstatement

Section 306 x Factor =

user: A common rule of thumb is to calculate performance materiality/tolerable misstatement as a fraction between 50% and 75% of materiality at the financial statement level (and materiality for items or lesser amounts, if applicable) with the percentage being increased from 50% as the likelihood of uncorrected and undetected misstatements decreases. See section 306. Misstatement

$0

$0

Section 306 5. Clearly Trivial Misstatements. Consider and document the amount of misstatements that will be passed at the workpaper level. Clearly trivial misstatements are discussed in section 306.

6. Changes in Planning Materiality Amounts. Document any changes in planning materiality or performance materiality/tolerable misstatement levels that occur during the audit and how they were determined.

AWP

6/30/17 6/30/16

LR Scope - 0 19,500

HR Scope - 0 13,000

PAJE - 0 4,100

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