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    Effects of Qualitative Factor Salience, Expressed Client...
    research summary posted May 7, 2012 by The Auditing Section, last edited May 25, 2012, tagged 09.0 Auditor Judgment, 09.01 Audit Scope and Materiality Judgments, 10.0 Engagement Management, 10.02 Materiality and Scope Decisions 
    Effects of Qualitative Factor Salience, Expressed Client Concern, and Qualitative Materiality Thresholds on Auditors’ Audit Adjustment Decisions
    Practical Implications:

    Individual auditors have wide variations in the materiality thresholds the auditors use to assess qualitative materiality.  Greater clarity in materiality guidance can potentially reduce the variability in auditors’ materiality threshold judgments pertaining to qualitative materiality factors.


    Ng, T. B-P and H. T. Tan. 2007. Effects of qualitative factor salience, expressed client concern, and qualitative materiality thresholds on auditors’ audit adjustment decisions. Contemporary Accounting Research 24 (4): 1171-92.

    Auditor judgment, audit adjustments, audit materiality
    Purpose of the Study:

    Judgments of materiality are pervasive throughout the financial statement audit.  Accounting standards state both quantitative and qualitative factors must be considered in materiality decisions.  Prior research, however, indicates that auditors traditionally use quantitative rules of thumb in their materiality judgments.  This study examines how the auditor’s qualitative materiality threshold and expressed client concern about booking an audit difference affects the auditors’ propensity to book the audit difference. 

    Design/Method/ Approach:

    In this study, the authors conducted an experiment using audit managers from the Big 4 certified public accountant firms based in Singapore.  These participants were used because at the time the study was conducted, SAB No. 99 or its equivalent had not been implemented in Singapore.  The authors utilized the context of a quantitatively immaterial audit difference that affects the client’s ability to meet analysts’ expectations.  Although not specifically stated, the data appears to have been collected in the early-mid 2000’s, prior to 2007.

    • Auditors with lower qualitative materiality thresholds (but not those with higher qualitative materiality thresholds) have a greater propensity to book a quantitatively immaterial audit difference that affects the client’s ability to meet analysts’ expectations when the qualitative materiality factor is made salient, in spite of the client’s preference not to book it.
      • The lack of attention to the qualitative factors in the absence of an aid that makes them salient may, in part, explain why auditors waive such audit differences
    • Effectiveness of attention-directing mechanisms (e.g., decision aids) that make qualitative materiality factors salient may be undermined if one of the following is true:
      • auditors apply high thresholds to assess qualitative materiality
      • the client expresses concerns about booking the audit difference in question, in which case the auditors’ qualitative materiality threshold will play a role
    Auditor Judgment, Engagement Management
    Audit Scope & Materiality Judgements, Materiality & Scope Decisions
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