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Glossary

Benchmark

Auditors generally determine planning materiality by applying a percentage to a benchmark amount from the financial statements.
When selecting a benchmark, consider the following:
  • Elements of financial statements (for example, assets, liabilities, equity, income, and expenses) and GAAP financial statement measures (for example, financial position, financial performance, and cash flows).
  • Nature of the entity and the industry in which it operates.
  • Size of the entity, nature of its ownership, and the way it is financed.
  • Focus for the entity on financial statement items.
Some benchmarks that might be better depending on the nature and circumstances of the entity include total revenue, total assets, gross profit, income from continuing operations before tax, other categories of reported income, and net assets.
Though terms may differ, comparable items are used as benchmarks for nonprofit organizations, governmental entities, and entities in other types of industries.
For many nonpublic companies, total assets or revenue could be a benchmark.
For public companies, income from continuing operations before taxes may be appropriate (but not when earnings are volatile).

This article applies to:

  • Product: Guided Assurance
  • Subject: Engagements