Materiality Allocation in Audit Planning: A Feasibility Study

Abstract

The purpose of the research described in this paper was to develop and test the feasibility of a new and more systematic approach to audit planning. The focal point of the proposed approach is the use of the concept of materiality allocation to plan the assignment of audit effort to various phases of the The ultimate goal of the proposed approach is to make possible more efficient audits, that is, audits which achieve greater levels of assurance at reduced audit costs. Increasing pressures faced by the auditor with respect to audit quality control, monitoring of questionable payments, reporting on internal control, detection of management fraud, and so forth, could lead to an escalation of audit costs. However, a countervailing force operating to inhibit such escalation is the increasingly competitive nature of the auditing industry (Bernstein [1978]). Thus, the auditor is under pressure to provide more services, perform better audits, and charge his clients less. Clearly these factors point to the need for more efficient auditing methods. As stated by Albrecht [1977, p. 50]: ... it is clear that resistance to increased audit fees and a changed audit environment require that we carefully consider ways to improve the audit. More than ever before, the auditing profession needs to develop techniques which enable the auditor to attain maximum levels of assurance at minimum audit costs. As the professional accountant well knows, planning is the key to success in this type of environment.