Benchmarks are often used as a guid

Benchmarks are often used as a guide when setting materiality, either in establishing a starting point
or setting parameters for consideration. The appropriate benchmark and percentage level to be
applied in a particular case is a matter of professional judgement and will be influenced by the nature
of the entity, the users of the financial statements and the needs of those users.
The appropriate benchmark(s) to use will depend on what is considered to be most important by
users of the financial statements. In some entities profit (or loss) is a key figure, in others asset value
or some other indicator of financial performance or position may be more relevant to the needs of
users. Different benchmarks may also be appropriate for determining materiality for different classes
of transactions, account balances or disclosures.
Because materiality considerations are specific to the entity, this guidance provides an upper limit to
the percentage level to be used in respect of benchmarks for different types of entity. The existence
and needs of users of the financial statements outside of the entity itself will tend to affect the
percentage level we apply to a particular benchmark. In general, the greater the number of external
users of the financial statements and the higher the level of external interest, the lower will be the
percentage level applied to the chosen benchmark.
Situations in which the percentage level will normally be lowered from the upper limits indicated in the
guidance include, but are not limited to, those in which:
 there are regulatory requirements, loan covenants or other contractual arrangements relating to
financial performance or position – breach of which could result in financial penalties that would
jeopardise the ability of the entity to continue as a going concern. In this case consideration
should be given to reducing materiality to a level which would ensure that any such breaches are
identified
 we know that certain key performance indicators (KPIs) are of importance to users of the
accounts. In this case the materiality level should be reconsidered in the light of the effect of a
particular misstatement on the KPI(s) in question. Such KPIs could be earnings per share,
cumulative net return per share, asset value per share, or other indicators of performance or
financial position. KPIs other than profit before tax may have a particular importance in publicly
traded entities or in other situations where third parties have been given an expectation of
performance or financial position. (This may result in using a different benchmark rather than the
normal primary benchmark; using a different materiality for the class of transaction, account
balance or disclosure; or lowering the primary benchmark range to be closer to a n alternative
benchmark indicator)