Performance materiality/tolerable misstatement

Performance materiality is an amount less than materiality for the financial statements as a whole (i.e., planning materiality) to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
Tolerable misstatement is the application of performance materiality to a particular audit sampling procedure and may be the same amount or an amount smaller than performance materiality. For purposes of this audit approach, which is based on MUS sampling, the same amount is used for performance materiality and tolerable misstatement.
Professional standards do not discuss precisely how performance materiality/tolerable misstatement should be calculated. The approach used in this worksheet is to determine performance materiality/tolerable misstatement as a percentage of planning materiality. The percentage used is based on your expectation of uncorrected and undetected misstatements.
Using this approach, a common rule of thumb is to calculate performance materiality/tolerable misstatement as a fraction between 50% and 75% of planning materiality, with the percentage being increased from 50% as the likelihood of uncorrected detected misstatements decreases.