ACCA Audit and Assurance (F8) Practice Exam

What is the benchmark materiality amount typically applied to profits before tax in an audit?

1. 0.5 - 1.0%

2. 2 - 5%

3. 5%

4. 5-10%

The correct answer is: 5%

In the context of audit materiality, the benchmark often used for profits before tax typically falls within the range of 5% to 10%. Therefore, 5% can serve as a conservative estimate, reflecting common practice in the audit profession. Using a benchmark of 5% helps auditors assess the overall performance of the financial statements and determine whether there are any misstatements that could materially affect the decision-making of users relying on those statements. This percentage is rooted in the principle that materiality is determined not only based on quantitative assessments but also on qualitative factors. Establishing materiality at around 5% ensures that auditors can focus on the most significant areas that could influence stakeholders and provide a reasonable assurance that the financial statements are free from material misstatement. This approach promotes efficiency in the audit process by directing attention to more critical aspects of financial reporting. Other options suggest either lower or higher percentages, which may not align with the standard practices commonly adopted in auditing contexts for profit benchmarks.