ACCA Audit and Assurance (F8) Practice Exam 2025 – The Complete All-in-One Guide to Achieve Exam Success

In an audit context, performance materiality refers to the amount set by the auditor that is less than the overall materiality for the financial statements. This concept is crucial because it acts as a safety net to reduce the risk that the total of uncorrected and undetected misstatements exceeds the overall materiality level for the financial statements as a whole.

By establishing performance materiality, auditors recognize that even a number of small misstatements could accumulate and lead to a larger impact on the financial statements, which may not be acceptable. This practice helps in designing the audit procedures and ensuring a thorough examination of the financial records. It also minimizes the chance of overlooking significant misstatements that might otherwise go undetected if only a single overarching materiality level was considered.

Setting performance materiality is integral to effective audit planning and execution, as it guides the auditor in determining the nature, timing, and extent of audit procedures necessary to gather sufficient and appropriate evidence.