Materiality disclosure and litigation risks: A Canadian perspective

Abstract

This article investigates the perceptions of auditors (accounting fi rms), preparers (industry) and users (banks) of fi nancial statements on the disclosure of a materiality list using the survey method. The materiality list is a subjective compilation by the auditor of unadjusted differences such as misstatements, omissions and rounding calculations that on an individual basis would not be considered material. Our survey results show that users agree with the disclosure of materiality lists and do not believe that a materiality list will expose preparers and auditors to litigation risks; users believe that a materiality list will reduce the risk of litigation, facilitate investment in stocks, reduce the cost of capital and usher in fi nancial stability. On the other hand, we fi nd that auditors disagree with users of fi nancial statements with respect to disclosure and risk of litigation. In addition, we fi nd that the perception of auditors, preparers and users is not infl uenced by factors such as gender and work experience. These results come from a sample set of a total of 501 survey questionnaires sent to bank, industry and accounting fi rms across Canada with 167 returned responses. These fi ndings indicate a disconnect between users and the preparers and auditors of fi nancial statements that should be fi xed. That is, investors and analysts (among the users) of fi nancial reports need to know how materiality is being defi ned and are not satisfi ed with the status quo currently defi ned by accounting and securities regulators. Preparers and auditors could achieve greater clarity in fi nancial reports by articulating what it takes for a transaction to be classifi ed as material. This materiality standard may best be accomplished by the creation of a materiality list.

Materialidade e Disclosure das Informações sobre Propriedades para Investimento

“…Ademais, verificou-se uma quantidade reduzida de trabalhos que relacionam especificamente disclosure e materialidade das informações (Cox, Dayanandan & Donker, 2014;Leite & Pinheiro, 2014;Holanda, 2015;Mota, Brandão & Ponte, 2016), assim, o presente estudo busca avançar nas discussões sobre a qualidade da informação contábil e a relação entre os dois temas.…”

“…Enquanto outros artigos tentam explicar as razões do disclosure (Beuren & Angonese, 2015;Rufino & Monte, 2014). Além disso, foi percebida a escassez de estudos que investigaram especificamente a relação entre disclosure e materialidade das informações (Cox, Dayanandan & Donker, 2014;Leite & Pinheiro, 2014;Holanda, 2015;Mota, Brandão & Ponte, 2016).…”