## Materiality for Particular Classes of Transactions, Account Balances or Disclosures (ABCD)
### The Core Idea
Certain items in financial statements may warrant a lower materiality threshold than the overall materiality figure. Misstatements in these items — even if below overall materiality — could still influence users' economic decisions.
> Shorthand: ABCD = Account balances, Classes of transactions, Disclosures (and Balances)
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### Triggers That Indicate a Lower Threshold Is Needed
| Trigger | Practical Example |
|---|---|
| Law/regulations heighten user expectations for certain items | Related-party transactions; management remuneration |
| Key industry-specific disclosures | R&D costs for a pharmaceutical company |
| A particular aspect of the business is separately disclosed | Segment data for a newly acquired business |
When any of these triggers apply, the auditor sets a separate, lower materiality level for that specific ABCD item.
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### Documenting Materiality (SA 320)
The auditor must document all of the following:
| Item | What to Record |
|---|---|
| (a) | Materiality for the financial statements as a whole |
| (b) | Materiality levels for particular ABCD (if applicable) |
| (c) | Performance Materiality |
| (d) | Any revisions to (a)–(c) as the audit progressed |
> Can materiality be revised? Yes. If new information emerges during the audit, the auditor must revise materiality and document the revision.
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### Materiality and Audit Risk — How They Interact
Both concepts operate throughout the entire audit, not just at planning. The interaction occurs at three key stages:
1. Identifying and assessing the Risk of Material Misstatement (RMM)
2. Determining the Nature, Extent, and Timing (NET) of Further Audit Procedures (FAP)
3. Evaluating uncorrected misstatements and forming the audit opinion