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    Joint Impact of Materiality Guidance and Justification...
    research summary posted February 16, 2017 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.01 Audit Scope and Materiality Judgments 
    Joint Impact of Materiality Guidance and Justification Requirement on Auditors’ Planning Materiality
    Practical Implications:

    The features that the authors examine, guidance structure and need of justification, vary among the Big 4 public accounting firms, and the authors show that variations in these features result in systematic differences in auditors’ planning materiality judgments. They specifically show that in circumstances where auditors’ reliance on structured guidance is inappropriate, a justification requirement can mitigate this dysfunctional effect. 


    Audsabumrungrat, J., S. Pornupatham, and H. Tan. 2016. Joint Impact of Materiality Guidance and Justification Requirement on Auditors’ Planning Materiality. Behavioral Research in Accounting 28 (2): 17 – 27. 

    planning materiality, structured guidance, and justification.
    Purpose of the Study:

    The authors of this study investigate whether the requirement to document a justification can overcome auditors’ overreliance on decision aids in a context where their use can lead to dysfunctional outcomes. They examine this issue in a planning materiality setting because planning materiality influences the effectiveness of the overall audit process. The decision aid they examine in this study relates to structured guidance to be used in materiality assessments. Public accounting firms have developed structured guidance to assist their staff in making planning materiality judgments and to increase judgment consistency within the firms, but variations exist in the use of such guidance. They also examine justification, which is the need to provide a rationale or reason to support one’s decisions. 

    Design/Method/ Approach:

    The authors test their prediction experimentally with audit managers from three Big 4 public accounting firms in Thailand. They employ a planning materiality assessment setting where merely following the steps documented in the structured guidance without making adjustments for client-specific factors can lead to less conservative materiality assessments. 

    • The authors find that audit managers make less conservative and less appropriate planning materiality assessments in the presence of structured materiality guidance, but this detrimental effect is mitigated by the need to justify their judgments.
    • Participants’ materiality assessments across all conditions are higher than that made by the expert panel, suggesting that participants are not making overly low assessments that have efficiency implications. 
    Auditor Judgment
    Audit Scope & Materiality Judgements