The formulas
- Each component performance materiality < group performance materiality
- Communication threshold <= group clearly trivial amount
- Group performance materiality < group materiality
How it works
AU-C 600 paragraph .37 requires the group auditor, for components where audit procedures are performed on disaggregated financial information, to set component performance materiality lower than group performance materiality to address aggregation risk, and to set a threshold for communicating component misstatements that does not exceed the amount regarded as clearly trivial to the group.
The standard does not set percentages. Paragraph .A131 says the amount is not a simple mechanical calculation and that more disaggregation across components ordinarily calls for lower amounts. Paragraph .A132 adds that a component that is a substantial portion of the group can sit closer to group performance materiality. Paragraph .A128 says component amounts need not be an arithmetic share of the group amount, so their sum can exceed group performance materiality.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Do I need component performance materiality for a referred-to auditor?
No. AU-C 600 .A129 says it is not required for components audited by referred-to auditors when the group auditor makes reference in the report.
Can a statutory audit materiality be used?
AU-C 600 .A134 says a component auditor's performance materiality for a statutory audit is ordinarily below group performance materiality and is then acceptable.
What is clearly trivial?
AU-C 450 .A3: an amount below which misstatements need not be accumulated, because their accumulation clearly would not have a material effect on the financial statements. AU-C 600 .A135 applies the same idea to the group.
Sources
- AICPA AU-C Section 600, Special Considerations: Audits of Group Financial Statements, SAS No. 149, effective for periods ending on or after December 15, 2026 (paragraphs .37 and .A128 to .A135)
- AICPA AU-C Section 450, Evaluation of Misstatements Identified During the Audit (paragraph .A3)
- AICPA AU-C Section 320, Materiality in Planning and Performing an Audit (definitions of performance materiality and tolerable misstatement)
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