AAA – L3 – SA – Q2.6 – Materiality Benchmarks

Accepted benchmark for materiality.

Question

Which of the following is an accepted benchmark for materiality?

A 1-2% of pre-tax profit

B 1-2% of operating profit

C 5-10% of revenue

D 1-2% of total assets

Answer

Explanation:
Typical benchmarks for materiality are 1-2% of revenue, 5-10% of pre-tax profit, or 1-2% of total assets. Option D (1-2% of total assets) is an accepted benchmark, while options A and B use incorrect percentages for profit-based benchmarks, and C uses an incorrect percentage for revenue. Thus, D is the correct answer.

Tags: Audit Planning, Financial Benchmarks, ICAG, Materiality
Level: Level 3

Topic: Planning

Uploader: Salamat Hamid