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ALG-CX-2.2: Component Materiality Worksheet

Governmental Unit:

Financial Statement Date:

Opinion Unit for Which Component Materiality Will Be Determined:

Completed by:

Date:

Instructions: The purpose of this form is for the group auditor to determine and document component
materiality for use in group audits. The group auditor completes this form when performing work on a component
included in the group financial statements or when assuming responsibility for work performed by a component
auditor. Auditors who are issuing a separate report on the financial statements of a component need to use the
form at ALG-CX-2.1. Review the guidance in section 204 before completing this form.
Unique Considerations When Determining Component Materiality in Audits of Governmental Entities. In
the audit of a governmental entity, the concept of group audits considers each opinion unit to be equivalent to its
own group. Thus, in an audit of group financial statements of a governmental entity, the auditors consideration of
materiality is based on each individual opinion unit.
It is likely that AU-C 600, Special ConsiderationsAudits of Group Financial Statements (Including the Work of
Component Auditors), will not be applicable in a governmental audit unless an individual opinion unit contains
components or is audited by other auditors. Opinion units that are most likely to have more than one component
include the aggregate remaining fund information (which often includes pension trust funds, investment trust
funds, and similar activities) and the aggregate discretely presented component units (which often has more than
one component unit). However, the financial statements of the governmental and business-type activities opinion
units generally will not be subject to AU-C 600 because those financial statements are formed by combining the
financial statements of the underlying major funds and aggregate remaining fund information, all of which are
separate opinion units for which the auditor expresses separate opinions. Other important considerations
include:
AU-C 600 always applies if the governmental entity has an equity method investment or when a component
of the entity is audited by other auditors (SLG, Paragraph 4.105).
When there are two or more components within an opinion unit, the group auditor is required to establish
component materiality and component performance materiality for each component.
Component materiality (and component performance materiality) should be less than group materiality (and
group performance materiality) for the opinion unit.
Aggregate component materiality for all components combined can be higher than group materiality for the
opinion unit.
Different component materiality amounts may be used for different components.
Adjusted group materiality (Step 1b) is the ratio of the base amount (such as the amount of total assets or total
revenues) for all components in the opinion unit that will be audited (including components for which reference
will be made) to the base amount for the group from ALG-CX-2.1. Use this amount as a guideline for
determining component materiality in Step 2.
Separate materiality (Step 1c) is the amount that would be determined if a separate report was being issued
on the financial statements of the component using ALG-CX-2.1. Use this amount as a floor for purposes of
determining component materiality when a separate report will not be issued.
Component materiality for particular items (Step 3) is a judgmentally determined amount that may be used,
for example, when an audit of specific elements, accounts, or items of a financial statement of an opinion unit
will be performed.

ALG-CX-2.2
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ALG 2/13

1. Adjusted Group Materiality and Separate Component Materiality.

a. GROUP MATERIALITY FOR THE OPINION UNIT (from ALG-CX-2.1) $_______________
b. ADJUSTED GROUP MATERIALITY

Base Amount for

All of the Opinion
Units Components to Be
Audited

/
/

Base Amount for

Group (Total
Assets or Total
Revenues for the
Opinion Unit from
ALG-CX-2.1)
)

Group Materiality
for the Opinion Unit

Adjusted Group
Materiality

c. SEPARATE MATERIALITY (Using Table 1 or Table 2 from ALG-CX-2.1 applied to the components financial
information)
Separate
Materiality

Component

2. Component Materiality and Component Performance Materiality. Apply professional judgment, considering the amounts in Step 1, to determine an appropriate component materiality for components to be audited
or reviewed. (Component materiality may be higher than separate materiality, but should be lower than group
materiality for the opinion unit.) For components to be audited by you (and other components as considered
necessary), also determine component performance materiality. A common rule of thumb is to calculate
performance materiality as a fraction between 50% and 75% of materiality.

Component to Be Audited or
Reviewed

ALG-CX-2.2
(Continued)

Component
Materiality

Factor

% =

% =

% =

% =

% =

% =

% =

% =

% =

Component
Performance
Materiality

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3. Component Materiality for Particular Items. Apply professional judgment to determine an appropriate
component materiality and component performance materiality for particular account balances, transaction
classes, or disclosures.

Component

Financial Statement Item

Component
Materiality

Factor

% =

% =

% =

% =

% =

% =

% =

% =

% =

Component
Performance
Materiality

4. Clearly Trivial Misstatements. Determine the amount of a misstatement that can be regarded as clearly trivial
to the group financial statements of the opinion unit and need not be communicated to the group engagement
team. This may be the same amount documented at ALG-CX-2.1 for the group or a lower amount depending
on the circumstances.

ALG-CX-2.2
(Continued)