Log the misstatements you have not corrected, mark whether each overstates or understates profit, and compare the net and gross totals with your materiality figures. Items at or below your clearly trivial level are left out.
Materiality, performance materiality and the trivial level are your own judgements, set under SA 320 and SA 450. Also consider qualitative factors, such as effect on covenants, trends, related parties or intent. A small net figure does not clear a misstatement that is qualitatively material. Check current standards.
Misstatements that run in opposite directions offset each other in the net figure, but the gross figure shows how much error there is in total. Auditors look at both, along with the effect on individual balances and ratios. Judgemental items, such as an estimate that falls outside a reasonable range, are listed alongside factual ones so the whole picture sits in one schedule.
Enter overall materiality, performance materiality and the clearly trivial threshold. Then list each uncorrected misstatement with its type, its effect on profit and its amount.
Items at or below the trivial threshold are excluded. The rest are split into those that overstate and those that understate profit. The net effect is the difference, the gross total is the sum. Both are compared with materiality, and the headroom is shown.
The figures support the evaluation that SA 450 requires. They do not replace the qualitative assessment.
Overall materiality ₹50,00,000, performance materiality ₹37,50,000, trivial ₹2,50,000.
