Auditor Reporting Decisions Involving Accounting Principle Changes: Some Evidence on Materiality Thresholds

Post-Enron Implicit Audit Reporting Standards: Sifting through the Evidence

“…In line with this, some prior studies find that the materiality thresholds of non-Big-N auditors are much lower than those of Big-N auditors(Messier 1983), and that non-Big-N auditors are more likely to issue a consistency modification(Chewning et al 1989).…”

Auditors’ Recognition and Disclosure Materiality Thresholds: Their Magnitude and the Effects of Industry

“…For instance, Woolsey (1954) and Dyer (1975) found national CPAs used higher thresholds than non-national CPAs. Similarly, Messier (1983) and Chewning, Pany, & Wheeler (1989) found Big 8 firms used higher thresholds than non-Big 8 firms. The studies agree that this variance is at least partly due to the absence of clear guidelines from the profession.…”

What Does “Materiality” Really Mean?

“…34, Capitalization of Interest Cost, Morris and Nichols (1988) find an average effect on income for modified audit opinions (that is, material changes) of 17 percent and for audit opinions not modified (that is, immaterial changes) of 5 percent. Chewning, Pany, and Wheeler (1989) examine three different accounting principles changes. Two of them were professionally mandated (SFAS No.…”

“…Auditing standards evidently did not discourage auditors from modifying audit opinions for seemingly immaterial changes. Nevertheless, the research of Morris and Nichols (1988) and Chewning et al (1989) implies considerable variation in materiality thresholds involving changes in accounting principles.…”