Materiality Calculator
Set overall mat, PM, and the clearly trivial threshold. The arithmetic takes a minute. The rationale paragraph is what protects the file — copy it straight to your WPs.
Materiality compiled,
not just calculated.
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Benchmark guidance
Setting materiality takes ten minutes. Documenting why this entity got 5% instead of 7% takes longer, and that is the part inspectors actually read. ISA 320 wants a determination at planning, a revision when actuals come in different, and a one-paragraph rationale tying both numbers to the entity and its users. On most files we review, the numbers are there. The rationale is where the gap shows up — and that gap is the single most cited materiality finding at both the AFM and the FRC.
Choosing the right benchmark
For a profit-oriented entity, PBT from continuing operations is what users care about, and ISA 320.A4 points there first. The 5–10% range is conventional, with 5% the typical starting point. None of that means 5% is correct for your client. It means start there and write down why. For a listed entity with analysts watching EPS to two decimals, sit at the lower end. For a private company with a single owner-manager, the higher end may be defensible. The percentage is judgment. The rationale paragraph is what makes that judgment reviewable.
Key audit considerations
If PBT is volatile, near breakeven, or negative, the default range stops working. Normalise over three years, switch to revenue or total assets, or run a blended calculation. Document why you switched, not just what you switched to — that is the line ISA 320.A8 actually requires.
Group audits sit under ISA 600. Component mat must be lower than group mat to absorb the aggregation risk across components. PM at 75% of overall is the SALY default; on a group with a high number of in-scope components, judgment-test whether tighter is needed.
Revisit at completion. ISA 320.12 requires reconsideration when actuals diverge from planning estimates. Most teams skip this. The revised number plus a one-line note ("PBT came in 22% under plan; PM held at 75% of revised mat") is what an inspector wants to see.
Qualitative factors lower the threshold for specific items. Related party transactions, director remuneration, going concern disclosures, and covenant-relevant balances can be material at amounts well below overall mat. The judgment is which line items get a separate threshold and at what level — and that goes in the same rationale paragraph.