FAR drops fixed materiality heuristics for documented judgement

FAR has rewritten its support on materiality in audit.FAR The updated position of 27 October 2026FAR moves away from fixed heuristics towards documented professional judgementFAR, with specific materiality for sensitive areasFAR and with reassessment, documentation and ISA 450 evaluation of uncorrected misstatementsFAR. The material is support for daily work, not part of FAR's recommendations or statements.

Materiality remains professional judgement starting from the common information needs of statement users as a group. Misstatements are material when they, individually or in aggregate, could reasonably be expected to influence users' economic decisions.FAR The assessment covers amount, nature and circumstances. The figure is therefore not an automatic limit for which errors can be accepted or when the report must be modified.FAR

A common starting point is a percentage of a relevant benchmark. ISA 320 mentions profit before tax, total revenue, gross profit, total costs, equity and net assets; other measures such as EBITDA can also be relevant. In profit-oriented entities profit before tax is often used, but the choice must be justified by the entity's circumstances and users' needs, not only by the resulting amount. Auditors weigh who the users are and how the nature and financing of the business affect the choice.

Where a benchmark varies sharply, auditors consider another benchmark or a normalisation, for example over several years or adjusted for one-off items, that remains relevant to the audited period. Adjustments may arise for large one-offs, varying owner remuneration, group contributions or appropriations, with documentation of why the change makes the benchmark more relevant.

Once the benchmark is chosen, auditors assess a suitable percentage. ISA 320 describes the percentage method with numerical examples but prescribes no fixed percentages or rangesFAR. The IFAC Small and Medium Practices Committee guide gives 3 to 7 per cent for profit before tax, 1 to 3 per cent for revenue or costs, 1 to 3 per cent for assets and 3 to 5 per cent for equity, a guide Revisorsinspektionen has referred to in supervision cases. Those ranges are examples, not binding limits for use without engagement-level judgement.FAR Benchmark and percentage must each be justified, with an assessment of whether the amount is reasonable for users. Equity or net assets can be relevant where users focus on financial position, and a low computed amount alone is no reason to reject the benchmark.

For some transaction classes, balances or disclosures, errors below overall materiality could still be expected to affect decisions. Auditors then set lower levels for those areas. That is specific materiality, distinct from performance materiality.FAR

Performance materiality is one or more amounts below overall materiality, and below each specific level where one exists.FAR Its purpose is to keep to an appropriately low level the risk that aggregate uncorrected and undetected misstatements exceed overall materiality. It is set through judgement — understanding of the entity, earlier misstatement experience and current expectations — not by a mechanical percentage.FAR

Materiality affects the whole audit and is reconsidered when new information would have led to a different amount from the start. When it is lowered, auditors consider whether performance materiality and the nature, timing and extent of further procedures must change. Amounts, factors and changes during the audit are documented.

At final evaluation, uncorrected misstatements are assessed individually and in aggregate for amount, nature and circumstances, including effects from earlier periods. Performance materiality is not an automatic acceptance limit.FAR Auditors accumulate identified misstatements other than those clearly trivial and request correction. Clearly trivial is not the same as immaterial.

Legal basis is ISA 320, ISA 450 and section 5.3 of ISA för LCE.FAR