Factor 1

Factor (applied to the benchmark to arrive at planning materiality)
When planning materiality is not determined based on PPC’s table, it's calculated by multiplying the chosen benchmark by a factor. Selection of the appropriate factor (or percentage) is based solely on your judgment about the client and its circumstances.
The following are examples of benchmarks and factors that often produce realistic amounts for planning materiality:
  • Gross profit: 1% - 2%
  • Income from continuing operations before taxes: 5%
  • Pretax income: 5% - 10%
  • Net income: 3% - 5%
  • Equity: 1% - 2%
Though terminology may differ, comparable items are used as benchmarks and factors for nonprofit organizations, governmental entities, and entities in other types of industries.