Industry
↳ Total assets is typical for financial entities per ISA 320.A4.
Benchmark
Performance Materiality
Reduces the probability that uncorrected misstatements exceed overall materiality.
Clearly Trivial
Misstatements below this need not be accumulated unless qualitatively material.
ISA 320 Decision Tree
One-page visual guide for benchmark selection — plus one practical audit insight per week.
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Benchmark Guidance
Financial institutions are fundamentally different from commercial enterprises in that their primary business involves managing assets and liabilities. ISA 320.A4 specifically identifies total assets as an appropriate benchmark for entities whose business involves holding assets. Regulatory capital requirements, loan loss provisioning, and fair value measurements add layers of complexity to materiality determination.
Choosing the Right Benchmark
Total assets at 0.5–1% is the standard range for banks and financial institutions. The lower end (0.5%) is appropriate for systemically important institutions or those under enhanced regulatory scrutiny. For smaller community banks or credit unions, 1–2% may be acceptable.
Key Audit Considerations
Loan loss provisions (expected credit losses under IFRS 9) are typically the highest-risk area and may warrant a lower specific materiality given the estimation uncertainty involved.
Fair value measurements of financial instruments, particularly Level 2 and Level 3 assets, introduce significant measurement uncertainty.
Regulatory capital adequacy ratios are critical for users — misstatements that could affect capital ratios may be material even if below overall materiality.
Off-balance sheet exposures (guarantees, commitments, derivatives) should be considered when assessing whether total assets alone captures the entity's full risk profile.
ISA 320.10 — Determine materiality for the financial statements as a whole when establishing the overall audit strategy.
ISA 320.11 — Determine performance materiality for assessing risks and determining further audit procedures.
ISA 320.A4 — Common benchmarks: PBT, revenue, gross profit, total expenses, total equity, or net asset value.