The Effect of Misstatements on Decisions of Financial Statement Users: An Experimental Investigation of Auditor Materiality Thresholds

Tuttle, Brad; Coller, Maribeth; Plumlee, R. David

doi:10.2308/aud.2002.21.1.11

Cited by 46 publications

(24 citation statements)

References 14 publications

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“…omissions, errors in estimations), such that many studies and standard setters recommend using thresholds to define the relevance of such misstatements (e.g. AASB, 2009;ESMA, 2011;Mio and Fasan, 2013;Lydenberg, 2012;Tuttle et al, 2002), in which case the magnitude of misstatements becomes the guide for implementing materiality. Other scholars (e.g.…”

Section: Concept Of Materiality In Corporate Reportingmentioning

confidence: 99%

What does materiality mean to integrated reporting preparers? An empirical exploration

Lai

Melloni

Stacchezzini

2017

MEDAR

113

109

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Purpose-This paper seeks to understand how the principle of materiality gets implemented in integrated reporting contexts.Design/methodology/approach-Drawing on an interpretation of materiality as a social construction, this research explores the meaning that practitioners attach to the principle during their implementation of it. Following an existing framework for exploring materiality in corporate reporting, this study investigates the meaning by focusing on who participates in determining integrated reporting materiality and to whom the integrated report (IR) is addressed. This analysis benefits from in-depth interviews with persons involved in the preparation of IR for a firm that pioneered this form of reporting.Findings-In IR preparers' view, the meaning of materiality corresponds with the company strategy: The IR describes strategic priorities and related actions and results. Capital providers are the primary intended addressees of the material information. Although several actors engage in IR preparation, the materiality determination process is governed by a specific "IR hub" in strict collaboration with and dependence on the CFO.Research limitations/implications-In an IR context, materiality is intimately connected to the function that preparers assign to the report.Originality/value-This novel research opens the "black box" of the process by which materiality gets defined and then practically implemented in an IR context.

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Section: Concept Of Materiality In Corporate Reportingmentioning

confidence: 99%

What does materiality mean to integrated reporting preparers? An empirical exploration

Lai

Melloni

Stacchezzini

2017

MEDAR

113

109

View full text Add to dashboard Cite

show abstract

“…Specifically, they find that investors use a lower level of materiality than those used in practice and suggested in pedagogical literature. Further, Tuttle et al (2002) find that nonprofessional investors do not trade according to standard, quantitative thresholds of materiality employed by auditors.…”

Section: How Materiality Is Determinedmentioning

confidence: 96%

“…With the exceptions of Cho et al (2003), Haka et al (1986), Fisher (1990) and Tuttle et al (2002), the majority of the existing materiality research has overwhelmingly focused on the auditor's perspective (e.g., Ward, 1976;Moriarity and Barron, 1979;Steinbart, 1987;Chewning et al, 1989;Morris and Nichols, 1988). While important to investigate and understand, some problems can occur when considering materiality from the auditor's perspective.…”

Section: How Materiality Is Determinedmentioning

confidence: 98%

An investigation of nonprofessional investors’ qualitative materiality judgments incorporating SEC listed vs. non-listed events

Pinsker

Pitre

Daigle

2009

Journal of Accounting and Public Policy

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a b s t r a c tWhen the SEC began listing specific potentially material events in its Regulation FD [Regulation Fair Disclosure, 2000. SEC Release 33-7881, Rules 101-103], it deviated from its long-time ''policy" of not providing materiality guidance to auditors and managers. What is currently unclear in the materiality literature is which factor(s) -information-based characteristics or user-based characteristicshas an effect on nonprofessional investor qualitative materiality judgments. Using a series of experimental markets, we examine and find no evidence that an information-based characteristic (distinguishing between listed and non-listed events) has an effect on nonprofessional investors' materiality judgments. Our evidence regarding user-based characteristics is mixed. We do not find evidence of the direction of disclosed events impacting investors' judgments, but we do find evidence of an anchoring effect. Our findings indicate that the content of the information disclosed to nonprofessional investors is not as important as the timing of the disclosure. Our investigation is unique in that we consider the (qualitative) nature of the event, rather than simply its (quantitative) magnitude.

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“…This material information must be disclosed or the statements would be considered false or misleading. Tuttle et al (2002) reported that market prices are actually overstated when material misstatements are not corrected in the fi nancial statements. Whether an item is material varies according to the particular business or industry, and situation, resulting in a subjective concept.…”

Section: Introductionmentioning

confidence: 97%

Materiality disclosure and litigation risks: A Canadian perspective

Cox

Dayanandan²,

Donker

2013

Int J Discl Gov

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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.

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The Effect of Misstatements on Decisions of Financial Statement Users: An Experimental Investigation of Auditor Materiality Thresholds

Cited by 46 publications

References 14 publications

What does materiality mean to integrated reporting preparers? An empirical exploration

What does materiality mean to integrated reporting preparers? An empirical exploration

An investigation of nonprofessional investors’ qualitative materiality judgments incorporating SEC listed vs. non-listed events

Materiality disclosure and litigation risks: A Canadian perspective

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