Audit materiality
In one sentenceThe threshold above which the auditor considers that a misstatement could change the decision of someone reading the financial statements. It is usually set as a percentage of a benchmark such as profit or revenue.
Simply put
The auditor does not look for every halala: the auditor sets an amount called materiality, and misstatements below it usually do not change the picture.
The benchmark and the percentage are a professional judgment that differs from one business to another, and the auditor may consider a small item important by its nature, such as amounts related to the owners.
Worked example
An auditor is examining the statements of a distribution company whose net profit before Zakat is 2,000,000 SAR, and chose 5% of profit (an assumed rate for illustration).
Benchmark: profit before Zakat2,000,000
Chosen percentage5%
2,000,000 × 5%100,000
Overall materiality100,000 SAR
Formula: Materiality = benchmark × the percentage the auditor chooses