How is audit materiality calculated?
Identify users, choose a relevant benchmark, select and justify a percentage, consider qualitative factors, set performance materiality and clearly trivial, then reassess as the audit progresses.
Audit Materiality Calculator
Assess suitable benchmarks and calculate overall materiality, performance materiality and a clearly trivial threshold using ISA (UK) principles and published UK audit practice.
Professional judgement: This calculator provides indicative decision support. It does not reproduce any audit firm's methodology, determine a “correct” threshold or replace consultation, documentation and the auditor's judgement.
Just need a simplified estimate? Use the Simplified Audit Materiality Calculator →
Step 1 of 3
Entity and users
Build the benchmark assessment
Describe the entity, likely users and audit circumstances before considering a percentage.
Benchmark assessment
Compare the candidate benchmarks
The ranking explains why a measure may be relevant. You retain the final selection.
Audit materiality
Selected materiality assessment
Review the figures, cross-checks and rationale against your firm's methodology and the engagement circumstances.
Overall materiality
Not calculated
Performance materialityNot calculated
Clearly trivialNot calculated
Specific materialityNot setConsider only for sensitive classes, balances or disclosures.
Benchmark cross-check
| Benchmark | Financial amount | Illustrative % | Indicative materiality | Equivalent to selected overall materiality |
|---|
Judgement considerations
Factors reducing suggested performance materiality
Factors supporting a higher percentage
Planning / final reassessment
Reconsider and document: ISA (UK) 320 requires revision when information becomes available that would have caused a different amount initially. This comparison does not mechanically decide the revised threshold.
Quantitative thresholds are not the whole assessment
A smaller matter may still influence users because of its nature or circumstances. Consider, among other matters:
- Turning a profit into a loss, or vice versa
- Changing covenant compliance
- Affecting regulatory requirements
- Concealing an unlawful transaction
- Affecting management remuneration or bonuses
- Related-party transactions
- Fraud or management bias
- Changing a key performance trend
- Sensitive statutory or narrative disclosures
- Omitting significant qualitative information
Potential audit documentation rationale
Technical references
- ISA (UK) 320 (Revised June 2016, Updated September 2025)
- ISA (UK) 450 (Revised June 2016, Updated September 2025)
- FRC Audit Quality Thematic Review: Materiality (December 2017)
- FRC Audit & Assurance Sandbox: Determining materiality for SMEs (June 2026)
Disclaimer: This calculator provides indicative materiality calculations and decision support based on ISA (UK) 320, ISA (UK) 450 and published UK audit practice. Materiality is a matter of professional judgement and must be determined in the context of the entity, its users and the circumstances of the audit. It does not replace an audit firm's methodology, consultation requirements or professional judgement.
Materiality explained
What is audit materiality?
ISA (UK) 320 treats materiality as a judgement about what could reasonably influence users of the financial statements.
What percentage should be used?
There is no mandatory universal percentage. The entity, users, financing, lifecycle, industry and benchmark volatility all affect the judgement.
Why is 5% of PBT common?
ISA (UK) 320 gives 5% of PBT from continuing operations as one example, and the FRC found 5% was the most common profit-based percentage in the Big Four FTSE 350 reports it examined. Neither makes 5% compulsory.
What is performance materiality?
It is set below overall materiality to reduce aggregation risk to an appropriately low level. It is not a mechanical 75% calculation.
What is clearly trivial?
ISA (UK) 450 requires accumulation of identified misstatements other than those that are clearly trivial. Clearly trivial is not another expression for “not material”.
When should another benchmark be used?
Revenue, gross profit, expenses, EBITDA or asset measures may be more relevant for losses, volatile profits, not-for-profits, investment or property entities and some owner-managed companies.
How do major audit firms determine materiality?
The FRC's 2017 review covered eight major firms, including Deloitte, EY, KPMG and PwC. It observed benchmark-and-percentage methodologies, varied performance-materiality approaches and clearly-trivial ranges of 0–5% of overall materiality.
- The ranges were firm methodologies observed by the regulator, not regulatory requirements.
- Five percent of PBT was common in the listed profit-based reports examined, but the FRC did not support a blanket threshold.
- Higher engagement risk generally produced a larger reduction from overall to performance materiality.
- The review supported lower performance materiality in first-year audits as good practice.
Technical basis
Authoritative sources and observed practice
The standards are the authority. The thematic review describes market practice, while the 2026 SME page summarises sandbox discussions and expressly is not official FRC guidance.
ISA (UK) 320Current September 2025 update: materiality, benchmarks, specific materiality, performance materiality and revision.ISA (UK) 450Current September 2025 update: accumulation and evaluation of identified misstatements.FRC Materiality Thematic ReviewObserved methodologies and audit practice across eight major UK firms.FRC SME materiality sandboxJune 2026 discussion of ranges, user tolerance, proportionality and professional judgement.
FAQs
Audit materiality questions
What percentage of profit before tax should be used for audit materiality?
Five percent is a common central point, but percentages above or below it may be appropriate. The benchmark, users, public-interest sensitivity and engagement facts must support the selection.
Does ISA 320 require 5% of profit before tax?
No. ISA (UK) 320 A8 uses 5% of PBT from continuing operations as an example for a profit-oriented manufacturing entity and expressly says higher or lower percentages may be appropriate.
What is performance materiality?
It is an amount below overall materiality used to reduce the risk that uncorrected and undetected misstatements aggregate above overall materiality.
Is performance materiality normally 75%?
Seventy-five percent is seen in market methodologies, but ISA (UK) 320 does not prescribe it. Previous misstatements, controls, first-year status and expected errors affect the judgement.
What is a clearly trivial threshold?
It is an amount used when deciding which identified misstatements need accumulation. Items are clearly trivial only when they are clearly inconsequential by size, nature and circumstances.
Is clearly trivial normally 5% of materiality?
The FRC observed 0–5% ranges across eight firms. ISA (UK) 450 does not require 5%, and a lower amount may be appropriate.
What benchmark should be used for a loss-making company?
Do not turn the loss into a positive PBT amount automatically. Consider what users focus on and whether revenue, gross profit, expenses, EBITDA, assets, equity or a transparently supported normalised measure is more relevant.
Should revenue be used instead of PBT?
Revenue may be more representative when profit is volatile, unusually small or negative, or users focus on operating scale. Pass-through revenue may make gross profit more informative.
How is materiality determined for an owner-managed company?
ISA (UK) 320 A9 notes that profit before owner remuneration and tax may be relevant where PBT is consistently nominal because profit is extracted as remuneration. The amount and rationale must be supported.
Does materiality need to be revised at the end of the audit?
It must be reconsidered when information becomes available that would have caused a different amount initially, including significant differences between anticipated and actual results.
Can an item below materiality still be material?
Yes. Nature and circumstances, including fraud, covenants, related parties, regulatory requirements or sensitive disclosures, can make a smaller matter material.