Auditor Materiality Disclosures: Exploring Risks of Quantitative Materiality Disclosure Mandates
Mackenzie M. Festa et al.
What the paper says
SUMMARY Regulators across different countries have debated requiring auditors to disclose their quantitative materiality thresholds within the audit report. Regulators in the United States have held off enacting mandates out of fear that these disclosures could mislead investors, whereas regulators in the United Kingdom and the Netherlands have enacted mandates out of a desire to better inform investors about the audit. This article summarizes a recent study by Festa, Jones, and Witz (2024) that finds that auditor quantitative materiality disclosures can mislead investors who have higher concerns about quantitatively small but qualitatively important misstatements. It informs practitioners about this potential unintended risk of quantitative materiality disclosures, and it also offers a helpful takeaway by demonstrating a practical solution. It demonstrates this risk can be addressed if auditors provide detailed disclosures of qualitative considerations applied in evaluating misstatements alongside quantitative materiality disclosures. JEL Classifications: M41; M42; M48.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.