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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Group audits

Group materiality for Corvid Group is set at 2,000,000 and group performance materiality at 1,400,000. Component A has been identified as a significant component, and the group team decides on component performance materiality of 700,000. Which consideration is most relevant to setting this lower figure for Component A?

Component performance materiality is set after considering aggregation risk across components and the component's own size and risk. This is why it is lower than group performance materiality. It is a judgement, not a fixed fraction, and it is not simply the component's statutory audit materiality.

  1. AComponent A's auditor is from a firm outside the group auditor's network, so the figure must be exactly half of group materiality
  2. BThe aggregation risk across components, together with the size and risk of Component ACorrect
  3. CThe need to match the component's statutory audit materiality, regardless of group considerations
  4. DThe fact that component performance materiality only applies to components with an unmodified prior-year report

Explanation

Component performance materiality reflects aggregation risk and the component's size and risk profile, so it is set below group performance materiality where appropriate. There is no rule of exactly half. A local statutory materiality may be lower, but the group figure is not driven by it, and the prior-year opinion is not the determinant.

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