Updated September 14, 2018

GUIDELINES
Determining and Using Materiality Thresholds in
Financial Audit
Adopted thru COA Resolution No. 2019-016
dated 25 June 2019

This set of guidelines prescribes the methods to be used in determining the

thresholds in audit: planning materiality, performance materiality and
testing threshold. The guidelines also cover the application of these
thresholds in the planning, execution and reporting phases of risk-based
audit.
Table of Contents
I. Objectives 1
II. Definition of Terms 1
III. General Guidelines 5
IV. Specific Guidelines
A. Computation of Thresholds
1. Overall planning materiality 7
Step 1 Choose an appropriate benchmark
Step 2 Choose which percentage to use
Step 3 Compute the overall planning materiality
2. Overall performance materiality 10
Step 1 Compute the extent of misstatements in the previous year
Step 2 Select percentage to be used
Step 3 Compute the overall performance materiality
3. Specific planning materiality and performance materiality thresholds
(if necessary) 12
Step 1 Determine whether it is necessary to apply specific
planning materiality
Step 2 Determine percentage to use
Step 3 Compute the specific planning materiality
Step 4 Determine specific performance materiality, if a specific
planning materiality is set
4. Testing Threshold 13
Step 1 Identify the Risk of Material Misstatement for the accounts in the
ARAPT
Step 2 Choose a percentage to use within the given range
Step 3 Compute the testing threshold
5. Threshold for clearly trivial matters (if necessary) 15
Step 1 Select a percentage of the overall planning materiality to
use as the threshold for clearly trivial matters
Step 2 Compute the threshold for clearly trivial matters
B. Uses of Thresholds
Planning Phase 15
1. Use the overall performance materiality to determine material accounts
Execution Phase 16
2. Use the testing threshold to identify the extent of audit
3. Identify clearly trivial matters
Reporting Phase 17
4. Make a conclusion on whether uncorrected misstatements are
material, individually or in aggregate
4.1. Use the quantitative materiality to evaluate the size of misstatements
4.2. Determine whether uncorrected misstatements are material by nature
4.3. Determine whether misstatements are material due to circumstances
C. Revision of Materiality Levels 19
1. Revise/confirm materiality levels prior to evaluating the
uncorrected misstatements
2. Revise/confirm materiality levels as the audit progresses

Annexes
A. Materiality Template
B. Sample Accomplished Materiality Template
C. Trial Balance of Agency XYZ
D. Summary of Previous Year’s Misstatements
E. Audit Risk Assessment and Planning Tool (ARAPT)
F. Trial Balance of Agency XYZ (with account classification)
G. Summary of Current Year’s Misstatements