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Performance Materiality and Audit Sampling: Building a Risk-Responsive Evidence Plan
Practical audit procedures, evidence points, and documentation considerations for Hong Kong audit teams.
Practice Overview
Last updated: 16 September 2026
Performance materiality and audit sampling are linked planning and execution judgments, not mechanical percentages or spreadsheet outputs. In a financial statement audit, overall materiality and performance materiality help the team plan for the risk that uncorrected and undetected misstatements could aggregate to a material amount, while sampling is one way to obtain audit evidence from a population. For Hong Kong auditors, a clear connection between the materiality rationale, assessed risks, population characteristics, sampling approach and planned responses supports a more focused audit and a file that can be understood on review.
Audit-quality risk arises when a file records a threshold and a sample size but not the professional judgment that connects them to the engagement’s circumstances. High-level HKSA 320 and HKSA 530 concepts point to the importance of professional judgment, risk-responsive planning, appropriate population definition and evaluation of results. The practical focus is to document why the approach is suitable, preserve the evidence supporting selection and testing, and reassess the plan when exceptions, control deficiencies or new information change the risk picture. This article is general professional technical education for Hong Kong auditors, not engagement-specific audit, legal, tax or regulatory advice.
Key Audit Issues
Performance materiality is set without an engagement-specific rationale
A percentage-based starting point may be useful, but it does not by itself explain the judgment. Documentation should connect the level selected to the entity’s circumstances, the financial-information needs of users, the nature and extent of identified risks, prior-period misstatements and the expected effectiveness of relevant controls. An unexplained or inconsistently applied level can weaken the basis for the planned extent of audit work.
Materiality is not translated to the assertion level
A single file-wide figure may obscure different risks in account balances, classes of transactions and disclosures. Significant estimates, unusual transactions, related parties, susceptibility to fraud, qualitative considerations and control weaknesses may call for distinct tolerable misstatement levels or more targeted responses. The audit strategy should show how performance materiality informs the work rather than treating it as a standalone calculation.
The population is incomplete, unsuitable or poorly understood
Sampling conclusions can be unreliable if the population does not correspond to the audit objective or excludes relevant items. Risks include using an untested management report, combining items with materially different characteristics, unclear cut-off, duplicate records or an inadequate link between the source system and the listing supplied. The team needs enough information about the population to design a meaningful selection.
Sample selection does not address sampling and non-sampling risk
Selecting familiar items, relying on undocumented judgmental choices or applying a prior-year sample without reconsideration may leave relevant risks unaddressed. Sampling risk concerns the possibility that a sample-based conclusion differs from one reached by testing the whole population; non-sampling risk can arise from inappropriate procedures or misinterpretation of evidence. Selection and testing should be designed to address the audit objective, not simply to meet a target count.
Exceptions are not evaluated in aggregate or fed back into the audit plan
A conclusion of ‘no material error’ is not sufficient where exceptions have been found. The team should distinguish factual, judgmental and projected effects as relevant, consider their nature and cause, aggregate misstatements appropriately, and assess whether the results indicate a population or control issue. Unresolved exceptions, patterns of error or changed circumstances may require additional work or revision of materiality and the audit response.
Tailored Audit Procedures
Document the materiality framework and planned use
Record the selected benchmark, the basis for the percentage or other method used, overall materiality, performance materiality and any lower levels applied to particular balances, transactions or disclosures. Link the rationale to the planning risk assessment, relevant qualitative factors, prior audit results and the intended use in designing further procedures.
Validate the population before selecting items
Obtain the population from the identified source, define its period and unit of sampling, and perform risk-responsive checks of completeness and accuracy appropriate to the procedure. Reconcile or trace relevant totals where suitable, investigate anomalies such as gaps or duplicates, and retain the final version used for selection.
Stratify or separately address individually significant and high-risk items
Identify items that are individually significant, unusual, susceptible to error or associated with higher-risk assertions, and consider whether they warrant separate testing. For the remaining population, design the selection approach with reference to the audit objective, expected misstatement or deviation rate, population variability, performance materiality and planned reliance on controls.
Select the sample in a way that supports the objective
Use a selection method that gives the team a reasonable basis to draw conclusions about the relevant population, and document the method, sample size, selection parameters and item identifiers. Where the approach is non-statistical, document why the professional judgment applied is appropriate. Preserve any system output, randomisation record or selection worksheet so that the selection can be retraced.
Perform assertion-focused testing and retain persuasive evidence
For each selected item, perform procedures that directly address the relevant assertions, such as inspection, external confirmation, recalculation, observation or other appropriate work. Cross-reference the work to source evidence, explain exceptions and record the nature, timing and extent of procedures performed. A tick mark or generic conclusion should not replace the underlying evidence and evaluation.
Evaluate results, aggregate effects and update the audit response
Assess sample exceptions for their amount, nature and cause; project misstatements where appropriate to the sampling approach; and consider the results together with other evidence and identified misstatements. Reconsider the sufficiency of evidence, the planned reliance on controls, materiality and the need for expanded or alternative procedures when results are inconsistent with expectations.
Controls and Evidence to Consider
Reviewed materiality judgment record
Maintain a dated working paper that records benchmarks considered, quantitative calculations, qualitative factors, overall and performance materiality, lower thresholds where applicable, changes made during the audit and preparer and reviewer conclusions. Cross-references should show how the judgment is reflected in the audit strategy and results evaluation.
Population provenance and integrity trail
Retain the final population listing, report parameters, extraction date, system or report source, reconciliation or other integrity checks performed, and explanations for material reconciling items. Version control and stable file references help demonstrate that the tested population is the population evaluated.
Reproducible sample-selection record
Keep the selection methodology, stratification logic, sample-size rationale, random seed or selection criteria where used, item identifiers, and evidence of any replacement or expansion. The record should enable an experienced reviewer to understand who or what could have been selected and what was ultimately tested.
Exception register and completion review
Use a cross-referenced schedule to accumulate exceptions and identified misstatements, record management explanations and corrective actions, show any projection or aggregation, and document the final evaluation against materiality. A focused supervisory review should challenge whether exceptions indicate broader risk, additional procedures or an update to the audit plan.
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