Materiality sets the threshold above which misstatements could influence users of financial statements. Choose a benchmark and percentage to calculate overall materiality, performance materiality and the clearly trivial threshold.
How it works
Set overall materiality from a chosen benchmark and percentage, derive performance materiality and the clearly trivial threshold, and compare common benchmark ranges side by side.
Overall materiality = Benchmark × Percentage
Performance materiality = Overall materiality × Performance %
Clearly trivial threshold = Overall materiality × Clearly trivial %
Common uses
- Audit planning and engagement documentation
- Internal audit and review engagements
- Management’s assessment of misstatements and errors
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| Benchmark | Pre-tax income |
| Pre-tax income | $4,670,000 |
| Revenue | $48,500,000 |
| Total assets | $52,400,000 |
| Equity / net assets | $21,700,000 |
| Total expenses | $43,830,000 |
| Percentage applied to benchmark | 5% |
| Performance materiality (% of overall) | 75% |
| Clearly trivial (% of overall) | 5% |
| Overall materiality | $233,500 |
| Performance materiality | $175,125 |
| Clearly trivial threshold | $11,675 |
The percentage ranges shown are illustrative ranges commonly cited in practice; apply your firm’s methodology and professional judgment.
Interpreting the results
- Choose the benchmark users of the financial statements focus on: pre-tax income for profitable companies, revenue or expenses for not-for-profits and break-even entities, assets for asset-based entities.
- Normalize pre-tax income for unusual items before applying a percentage.
- Document the benchmark, percentage and rationale; reviewers and inspectors test these judgments.
Frequently asked questions
How is audit materiality calculated?
Overall materiality is a percentage of a benchmark that users of the financial statements focus on, such as pre-tax income, revenue, total assets or total expenses. The benchmark and percentage are matters of professional judgment and must be documented.
What is performance materiality?
Performance materiality is set below overall materiality, often at 50% to 75% of it, to reduce the risk that uncorrected and undetected misstatements together exceed overall materiality. Lower percentages are used when risk is higher.
What does clearly trivial mean?
Misstatements below the clearly trivial threshold are so small that they would not be material individually or in aggregate, so they need not be accumulated. The threshold is commonly set at around 5% of overall materiality.
Related calculators
- Audit Sample Size Calculator: Sample sizes for attribute (controls) testing and monetary unit sampling.
- Financial Ratio Analyzer: 18 liquidity, leverage, efficiency and profitability ratios from the statements.
- Bank Reconciliation Worksheet: Adjusted bank and book balances with the journal entries the reconciliation requires.
- Confidence Interval Calculator: Confidence interval for a mean or proportion, margin of error and required sample size.
- Outlier Detector (Z-Score, IQR, Modified Z): Flag outliers by Z-score, interquartile range fences and the robust modified Z-score.