The accumulation of all potential misstatements in a place where the audit team can assess the materiality of misstatements is often based on performance materiality.

Question

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Performance materiality is used by auditors to reduce the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. It acts as a threshold to evaluate the significance of individual misstatements and their potential impact when accumulated.

The Accumulation of All Potential Misstatements in a Place Where