Materiality level in the audit is the base for selecting transaction that can be neglected or emphasis need not to given. Materiality is the standard for the auditor that decides maximum amount of transaction that can be neglected and which does not lead to misstatement of financial statements . Materiality is that level up to which decisions of stakeholders cannot be affected. In case of Soundworld, their business operation is at large level therefore materiality level can be set at 4 % of transaction amount. That means if any expense transaction involve amount which is less than 4 % of total expenses then that transaction can be treated as less important.
4 % of transaction amount has been decided as materiality level because of following reasons : Since business operation of Soundworld ltd has moderate level of amount in its transaction, therefore 4 % material level is justified.
Since risk assessment suggests that there is high risk of misstatement some thefts of merchandise had taken place.
Management is concern about cash handling by staff therefore there shall be no materiality when it comes to cash management and detail evidences shall be collected while auditing cash balance.
Since internal control process of Soundworld suggests weakness because of incidences that had taken place during the year, materiality level shall be kept at low level i.e. 4 %.