Annual Audit Manual
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2105 De Minimis SUM Posting Level
Sep-2022
CAS Requirement
The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial. (CAS 450.5)
CAS Guidance
Paragraph 5 requires the auditor to accumulate misstatements identified during the audit other than those that are clearly trivial. “Clearly trivial” is not another expression for “not material.” Misstatements that are clearly trivial will be of a wholly different (smaller) order of magnitude or of a wholly different nature than those that would be determined to be material, and will be misstatements that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any criteria of size, nature or circumstances. When there is any uncertainty about whether one or more items are clearly trivial, the misstatement is considered not to be clearly trivial (CAS 450.A2).
The auditor may designate an amount below which misstatements of amounts in the individual statements would be clearly trivial, and would not need to be accumulated because the auditor expects that the accumulation of such amounts clearly would not have a material effect on the financial statements. However, misstatements of amounts that are above the designated amount are accumulated as required by paragraph 5. In addition, misstatements relating to amounts may not be clearly trivial when judged on criteria of nature or circumstances, and, if not, are accumulated as required by paragraph 5 (CAS 450.A3).
OAG Guidance
We will ordinarily designate a de minimis Summary of Uncorrected Misstatements (SUM) posting level below which misstatements are considered to be clearly trivial and therefore need not be accumulated and posted to the SUM. For guidance on evaluating misstatements see OAG Audit 9015.
We apply our professional judgment to determine the de minimis SUM posting level. The factors that we consider include
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the number and amount of prior years’ misstatements, whether corrected or uncorrected;
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results of our risk assessment;
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client expectations of what will be communicated to them; and
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the margin available before there would be non-compliance with a debt covenant (i.e., debt covenant compliance is not sensitive).
A de minimis SUM posting level between three percent and five percent (3% and 5%) of Overall materiality is acceptable. Further, we generally expect the de minimis SUM posting level to be five percent of overall materiality. For example, if we determine the overall materiality to be five percent of pre-tax income from continuing operations, then the de minimis SUM posting level is generally expected to be a quarter percent of pre-tax income from continuing operations.
A de minimis SUM posting level below five percent of overall materiality may be appropriate in certain situations described below.
De Minimis SUM Posting Level
Generally, we expect the de minimis SUM posting level to be five percent of overall materiality; however, a de minimis SUM posting level of less than five percent of overall materiality may be appropriate in the following circumstances:
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audits often giving rise to audit adjustments (whether or not material),
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high risk of material misstatement,
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numerous significant risks identified,
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large multi-location audits with many components involved in the group audit (see OAG Audit 2333), and
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client and audit committee expect all misstatements or misstatements at some level less than five percent of overall materiality to be communicated to them.
3% |
5% |
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Number and amount of misstatements |
Audits of this entity often give rise to adjustments. Amounts are typically not material. |
Audit adjustments are expected to occur from time to time. Amounts are not material. |
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Risk assessment |
Large multi-location audit with many reporting components involved in the group audit. Generally several additional significant risks identified beyond presumptive revenue recognition significant risk and significant risk of management override. |
Generally several elevated risks of material misstatements and/or few additional significant risks other than the presumptive revenue recognition significant risk and significant risk of management override. |
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Management and audit committee expectations |
Management and audit committee expect misstatements less than 5% of overall materiality to be communicated. |
Management and audit committee expect misstatements approximating 5% of overall materiality (individually and/or in aggregate) to be communicated. |
Establishing a Balance Sheet or Income Statement Reclassification-Only De Minimis SUM Posting Level
As explained in OAG Audit 9015, there may be circumstances where we evaluate misstatements that impact only the balance sheet separately (i.e., certain misstatements impact balance sheet classification only), because users may tolerate misstatements larger than our overall materiality based on profit. In such cases, it may be appropriate to establish a separate de minimis SUM posting level for such balance sheet misstatements. However, the use of a different de minimis amount for posting balance sheet only uncorrected misstatements to the SUM is not intended to suggest that a different performance materiality can be used to plan and test balance sheet accounts.
If a different de minimis SUM posting level is utilized for uncorrected misstatements that affect only the balance sheet, it is established in consideration of both the amount that represents the level of misstatement that could be considered material to any key element of the balance sheet (e.g., financial statement line item, subtotal, working capital or liquidity measures) and aggregation risk. The balance sheet-only de minimis SUM posting level is established by using a percentage of the amount that could be considered material to any key element of the balance sheet.
In addition, when establishing a balance sheet-only de minimis SUM posting level, our documentation includes the following considerations:
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The impact of any potential misstatements on liquidity measures (e.g., where such misstatements would impact current assets or current liabilities) or qualitative measures of materiality.
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A comparison of the balance sheet-only de minimis SUM posting level and the overall materiality for the financial statements taken as a whole. Generally, the balance sheet-only de minimis SUM posting level would not be expected to exceed overall materiality for the financial statements taken as a whole. However, there may be instances where the quantitative size of the balance sheet is clearly disproportionate to the quantitative size of the income statement and therefore, it is appropriate to establish the balance sheet-only de minimis SUM posting level in excess of overall materiality for the financial statements taken as a whole based on an operating performance or other income statement measure.
It may also be appropriate to establish a separate income statement reclassification-only de minimis posting level. In addition to the similar considerations related to establishing a balance sheet-only de minimis level, we need to recognize that users’ tolerance for classification errors impacting an operating performance or other income statement measure may not be as high as for balance sheet classification misstatements.
OAG Guidance
The determined de minimis SUM posting level may require downward adjustment during the audit. For example, if we identify an increased number of misstatements below the original de minimis SUM posting level, decrease it until we are satisfied that misstatements below the designated amount, either individually or aggregated with other adjustments, would be trivial to the financial statements. See consideration of identified misstatements as the audit progresses (OAG Audit 9013).