Document ID: chunk:federal_register_of_legislation:F2025C00096:body:0:p47
Version: federal_register_of_legislation:F2025C00096
Segment Type: other
Provision Reference: 
Character Range: 134725–137961

report, ASA 320[81] requires a determination of the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures.  In these circumstances, the group auditor may need to consider whether a component performance materiality lower than the amount communicated to the component auditor may be appropriate for those particular classes of transactions, account balances or disclosures.[82]

 3.       The determination of component performance materiality is not a simple mechanical calculation and involves the exercise of professional judgement.  Factors the group auditor may take into account in setting component performance materiality include the following:

           * The extent of disaggregation of the financial information across components (e.g., as the extent of disaggregation across components increases, a lower component performance materiality ordinarily would be appropriate to address aggregation risk).  The relative significance of the component to the group may affect the extent of disaggregation (e.g., if a single component represents a large portion of the group, there likely may be less disaggregation across components).

           * Expectations about the nature, frequency, and magnitude of misstatements in the component financial information, for example:

                   + Whether there are risks that are unique to the financial information of the component (e.g., industry-specific accounting matters, unusual or complex transactions).

                   + The nature and extent of misstatements identified at the component in prior audits.

 1.       To address aggregation risk, paragraph 35(a) requires component performance materiality to be lower than group performance materiality.  As explained in paragraph A118, as the extent of disaggregation across components increases, a lower component performance materiality amount ordinarily would be appropriate to address aggregation risk.  In some circumstances, however, component performance materiality may be set at an amount closer to group performance materiality because there is less aggregation risk, such as when the financial information for one component represents a substantial portion of the group financial report.  When determining component performance materiality for a non-controlling interest in an entity that is accounted for by the equity method, the group auditor may take into account the group's ownership percentage and the share of the investee's profits and losses.

 2.       In some cases, further audit procedures may be performed by the group auditor or a component auditor on a significant class of transactions or significant account balance as a single population (i.e., not disaggregated across components).  In such cases, group performance materiality often will be used for purposes of performing these procedures.

"Clearly Trivial" Threshold (Ref: Para: 35(b))

 1.       The threshold for communicating misstatements to the group auditor is set at an amount equal to, or lower than, the amount regarded as clearly trivial for the group financial report.  In accordance with ASA 450,[83] this threshold is the amount below which misstatements