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.