Effects of qualitative factors and auditors’ personal characteristics on materiality judgments

Abstract

Purpose The purpose of this paper is to investigate the effect of qualitative materiality factors on auditors’ assessment of materiality and the determination of the type of the auditors’ reports. This paper also analyzes whether differences in personal characteristics of auditors can influence their use of qualitative materiality factors in assessing material misstatements. Design/methodology/approach A questionnaire and experimental case studies were undertaken to determine whether differences in personal characteristics of auditors can influence their degree of reliance on qualitative factors in assessing the materiality of detected misstatements. Descriptive and statistical tests were used to analyze the data collected. Findings The results of this paper show that qualitative materiality factors strongly influence the auditor’s materiality judgments. However, no significant differences were found regarding the effects of auditors’ personal characteristics on the degree to which they rely on the qualitative factors in their materiality judgments. Also, in certain situations, auditors considered factors other than the income for assessing certain misstatements as material and consequently modified their audit reports. Originality/value This paper examines the influence of qualitative factors on auditors’ materiality judgments and develops a list of qualitative factors to be considered by auditors when assessing materiality. It also concludes that the nature of misstatement is the least important qualitative factor considered by auditors when assessing materiality of detected misstatements and that the existence of more explicit or standardized qualitative materiality guidelines would lead to a more uniform judgment among auditors.

Determinants of the Relationship Between Greenhouse Gases Emissions Disclosure Assurance and the Quality of Auditor Professional Judgment on Materiality: An Experimental Study

“…This means that the professional experience of the auditor has a significant impact on the relationship between GHGE assurance and the quality of the auditor's professional judgment on materiality, and therefore the null hypothesis is rejected and the alternative hypothesis H2 is accepted. This finding is consistent with the findings of several studies (e.g., DeZoort et al, 2019;Hegazy & Salama, 2022;DeZoort et al, 2023).…”

“…Regarding the impact of professional experience on the professional judgment of auditors regarding materiality, many previous studies (e.g., Bhattacharjee & Moreno, 2002;Asare et al, 2009;Martinov-Bennie & Pflugrath, 2009;Manita et al, 2011;Adam & Dacunha, 2019;DeZoort et al, 2019;Hegazy & Salama, 2022;DeZoort et al, 2023) have indicated that the quality of auditors' professional judgment regarding materiality varies based on their professional experience. These studies agreed on the positive and significant influence of auditors' professional experience on the quality of their professional judgment regarding materiality.…”

“…By analyzing the most important previous relevant studies (e.g., DeZoort et al 2019;Hegazy & Salama, 2022;DeZoort et al 2023), a question can be raised about the extent to which it is preferable to follow either the control or the moderator approaches. To answer this question, the relationships under study of the second and third hypotheses (H2 & H3) are re-tested separately, after converting the two moderator variables (the professional experience of the auditor and his registration with the FRA) into two control variables.…”

“…One method used to confirm the reliability of the conclusions drawn from the basic analysis of the research hypotheses is sensitivity analysis. Testing research hypotheses over time can be used for sensitivity analysis (e.g., Doxey & Sealy, 2022;Thai et al, 2022;Appelbaum et al, 2023), or utilising proxies for the studied independent or dependent variables, or both (e.g., DeZoort et al, 2019;Hegazy & Salama, 2022), or adapting the research assumptions to a new population and sample to retest them (DeZoort et al, 2023).…”

“…On the other hand, many previous studies (e.g., DeZoort et al, 2019;Hegazy & Salama, 2022;DeZoort et al, 2023) pointed to the difference in the quality of the auditor's professional judgment on his judgment on the materiality according to his professional experience and his registration with the FRA. The aforementioned studies agreed on the positive and significant impact of the auditor's professional experience on the quality of his professional judgment on the materiality, as a result of the reflection of that experience on raising the perceived level of audit quality, by increasing the efficiency and effectiveness of the performance of the audit process and then increasing its ability to reduce the opportunistic behavior of the management, as well as contributing to lowering the actual level of information risk, supporting the financial stability of the firm, and lowering the level of information asymmetry which is reflected in increasing the quality of the auditor's professional judgment regarding materiality.…”