An empirical study on the materiality calculation at financial statements level

Abstract

This study aims to find an answer to the question that “whether there is a significant difference between quantitative thresholds of materiality (at the financial statement level) calculated according to the method used in Iran and the method employed by big audit firms.” The calculated quantitative threshold of materiality according to the method used in Iran and the method employed by big audit firms (based on the study of Eilifsen & Messier, Auditing: A Journal of Practice & Theory, 2015, 34, pp. 3–26) compared by using the information of 342 listed firms on the Tehran Stock Exchange during 2014–2018 by comparing test means. The difference between the calculated quantitative threshold of materiality based on the method used in Iran and the method employed by big audit firms is significant. About two decades just passed from the compilation of the method of assessing the quantitative threshold of materiality in Iran, and despite the change in related audit standards, it seems that the guideline requires revision, and professional authorities should pay considerable attention to the issue. To be informed of the manner of evaluating the quantitative threshold of materiality by big audit firms and comparing that with the method used in Iran can provide a better understanding of materiality and its assessment for professional authorities, auditors, scholars, and other users of financial statements. International audit firms are not very active in Iran. Comparing Iranian auditors' materiality thresholds with international audit firms contributes and expands the materiality literature about materiality judgment in developing countries with no or little relevance to international audit firms.