Judgment in an auditor's materiality assessments

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‘Materiality’ is considered a key audit concept both theoretically and in practice, but regulation enforcers are concerned about the different views on materiality held by preparers, auditors, users and enforcers, respectively, because different levels of materiality could result in users having a heterogeneous decision basis. This may seem surprising considering that the rule-of-thumb is simply to calculate materiality as 5% of net income before taxes. By analysing the prior audit materiality literature through a comprehensive literature review, this paper identifies the important quantitative and qualitative components of materiality judgments, which include both task, person and interpersonal interactions in line with general audit judgment and decision-making theory. This analysis offers an enhanced understanding of what the »black box« of professional
materiality judgment contains. The analysis will enable auditors to make more
homogeneous judgments; and it will allow external stakeholders, such as financial statements users, legislators and standard setters, and regulation enforcers to achieve a better understanding of the materiality concept and any divergent materiality decisions.
TidsskriftDanish Journal of Management & Business
Udgave nummer2
Sider (fra-til)53-65
StatusUdgivet - sep. 2015


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