Modeling the Materiality Judgements of Audit Partners

Abstract

Several researchers (e.g., Boatsman and Robertson [1974], Dyer [1975], Frishkoff [1970], Pattillo [1975], Pattillo and Siebel [1974], and Woolsey [1973]) have attempted to explain how auditors make materiality judgments. However, these research efforts have not provided satisfactory explanations of the materiality judgment. In this paper, we (1) suggest a different view of the materiality concept, (2) suggest a methodology for examining how materiality decisions are reached, and (3) demonstrate the application of this approach to a specific materiality decision. Much of the research on materiality judgments is focused on discovering the amount of consistency which exists among professionals in making materiality judgments. The findings of this research have demonstrated that, in fact, no consensus exists in the profession. Bernstein [1967] summarizes much of the literature with the observation: [the decision function] seems to be . . . a highly personal device, since the output [decisions] can vary significantly on what are the same or similar sets of facts. Four possible sources of differences may exist among auditors' decision models which would explain the lack of consensus in materiality judgments. These are: (1) the variables deemed relevant to the decision; (2) the ma-