TheAudit and Assurancesection of the OTM provides clear definitions from international auditing standards. It states:
“Performance materialityrepresents the threshold below overall materiality that auditors use to reduce the risk that aggregate uncorrected misstatements exceed overall materiality. It alsoreflects the auditor’s confidence in the company’s control environment and financial systems.”
This means auditors lower performance materiality when they haveless trustin internal controls and raise it when controls are robust. The concept thus indicates thedegree of auditor trustin the company’s systems—exactly as captured inoption C.
Options A and B contradict the principle: performance materiality isalways lowerthan overall materiality, and its adjustment direction depends on risk, not the absolute control strength.
Hence,option Cis verified as correct.
????Reference:2021-Final-Book.pdf, Chapter 5 — Governance Factors (Audit Quality and Assurance Frameworks section).
