Materiality in Performing an Audit – Experimental Evidence

Abstract

At present, ways to improve audit quality and auditing decisions are intensively being discussed worldwide by standard setters and researchers. Audit quality is mainly influenced by two factors the requirements of standard setters and the professional judgment of auditors. Especially the materiality judgment is mainly influenced by the individual judgment of the respective auditor, because there is a lack of clear standardized guidelines to materiality judgments. Thus the same issue could be judged differently by different auditors. Auditors’ materiality judgments are important because they have a significant influence on what information is recorded in the accounts and disclosed in financial statements and hence available for decision making by external parties. The objective of the research is to study the effects of standardized materiality guidelines on auditors’ materiality judgment. By the use of an experimental study the paper examines if the setting of quantitative materiality thresholds lead to a more objective auditors’ materiality judgment and to a more uniform materiality judgment for same issues. The results of the study provide evidence that the use of standardized materiality guidelines leads to a more uniform materiality judgment. The paper discusses the implications of these findings.