5.07 Auditor's report gives two different percentages for the same group materiality, and neither matches the income statement
UK Company A · a UK-listed medical technology group · Presentation point
In brief
The auditor's report expresses group materiality of [amount] [wording masked] and of profit before taxation twice. The summary says [n]% and [n]%; section 6.1 says [n]% and [n]%. On the reported trading profit of [amount] and profit before taxation of [amount] the percentages are [n]% and 5%. The 2024 comparatives ([n]% and [n]%) agree in both places and recompute.
The evidence, as filed
Further pages withheld to protect the company’s identity (two): Annual Report 2025, page 200; Annual Report 2025, page 203. Their wording or layout could lead back to the company even with names and figures masked; the evidence list below records what each page shows.
Names, figures, dates, logos and any wording that could be searched back to the company are boxed out in grey; the point is highlighted in yellow.
What the report shows, and what the rule requires
| What the annual report shows | What the rule requires |
|---|---|
| What the annual report shows Summary: [n]% of revenue, [n]% of trading profit, [n]% of profit before taxation. Section 6.1: [n]% of revenue, [n]% of trading profit, [n]% of profit before taxation. Recomputed on the reported figures: [n]% of trading profit and 5% of profit before taxation. | What the rule requires One set of percentages, the same in the summary and in section 6.1, that recomputes from the reported trading profit ([amount]) and profit before taxation ([amount]), or a stated basis if a different profit figure was used. |
What we checked: Both materiality paragraphs of the auditor's report; group income statement; the trading profit table in the financial review; the 2024 auditor's report
Why it matters
A reader comparing the summary with section 6.1 sees two different measures of how conservative the audit threshold is against profit; neither matches the reported profit before taxation. The accounts and the opinion are not affected.
Exposure
No accounting or legal exposure; a presentation inconsistency in the explanation of materiality in the auditor's report.
Our workings
the summary of the audit approach states group materiality of [amount] represents [n]% of trading profit and [n]% of profit before taxation; section 6.1 states the same [amount] represents [n]% of trading profit and [n]% of profit before taxation. The group income statement reports profit before taxation of [amount] and the financial review reports trading profit of [amount].
[n] / [n] = 5% and [n] / [n] = [n]%; the summary's trading-profit figure recomputes, the section 6.1 figure does not; neither profit-before-tax figure recomputes. The printed [n]% implies a profit before taxation of [n] / [n]% = [n] and the printed [n]% implies [n] / [n]% = [n]; no such figure appears in the statements. The 2024 comparatives recompute exactly ([n] / [n] = [n]%; [n] / [n] = [n]%).
The materiality amount itself ([amount]) is consistent throughout, so the audit opinion and the accounts are unaffected; the point is the accuracy of the explanation of materiality that the auditor's report gives the reader.
| Measure | Recomputation | Printed in summary / section 6.1 |
|---|---|---|
| Profit before taxation 2025 ([amount]) | [n] / [n] = 5% (2024: [n] / [n] = [n]%) | [n]% / [n]% (2024: [n]% in both) |
| Trading profit 2025 ([amount]) | [n] / [n] = [n]% (2024: [n] / [n] = [n]%) | [n]% / [n]% (2024: [n]% in both) |
| Profit implied by printed rates | [n] / [n]% = [n]; [n] / [n]% = [n]; [n] / [n]% = [n] | not a reported figure |
Management’s best defence, and our reply
The auditor may say the percentages are illustrative context for a materiality set on revenue, the primary benchmark, and that the supporting ratios were computed on profit figures available when materiality was set or revisited. The amount of [amount], which is what drives the audit, is the same everywhere and the revenue percentage recomputes. However, the report prints one ratio with two different values under the same label, and neither profit-before-tax value recomputes from the final income statement, so at least one, and on the evidence both, are wrong as stated; no basis is named that would reconcile them.
The fix
- The Audit Committee asks the auditor to state one set of percentages computed on the final figures (for 2025: [n]% of trading profit and 5% of profit before taxation), or to name the profit basis used if it differs, and to make the summary and section 6.1 agree in future reports.
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | Summary of the audit approach: [n]% of trading profit and [n]% of profit before taxation | Document | Annual Report 2025, page 200 |
| 2 | Group materiality amount in the summary | Document | Annual Report 2025, page 200 |
| 3 | Section 6.1: [n]% of trading profit and [n]% of profit before taxation for the same materiality | Document | Annual Report 2025, page 203 |
| 4 | Section 6.1 group materiality, same amount as the summary | Document | Annual Report 2025, page 203 |
| 5 | Group income statement: profit before taxation [amount] (2024: [amount]) | Document | Annual Report 2025, page 211 |
| 6 | Financial review: trading profit [amount] (2024: [amount]) | Document | Annual Report 2025, page 20 |
Prepared by Pramanex from the company’s published annual reports, without the company’s involvement, to show how an annual report review reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other assurance engagement, and not legal advice. A regulator-style question is a question, not a conclusion.
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