Auditors' recognition and disclosure materiality thresholds: Their magnitude and the effects of industry

Errol R. Iselin, Takiah M. Iskandar

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

Materiality thresholds are the dividing line between material and immaterial information. Recognition materiality thresholds are the dividing line between what is recorded and what is not recorded in the accounts. Disclosure materiality thresholds are the dividing line between what is separately disclosed in the financial statements and what is not separately disclosed. Auditors materiality thresholds are important because they have a significant influence on what information is recorded in the accounts and disclosed in financial statements and hence available for decision making by external parties. However, there are no research findings about recognition thresholds, and those in relation to disclosure thresholds show a lack of consensus. Hence the motivation for this research. The objective of the research is to study auditors' recognition and disclosure thresholds within the context of industry, which is divided into the industry of the firm and the industry specialization (experience) of the auditor. The results of the study show that: (1) Recognition thresholds are significantly lower than disclosure thresholds. (2) The mean thresholds are 5·7% (recognition) and 8·7% (disclosure). These are in the 5% to 10% guideline provided by Australian accounting standards. (3) The thresholds appear to vary with industry market risk. (4) Auditors appear to use the thresholds from the industry in which they specialize, in an industry in which they do not specialize. The paper discusses the implications of these findings.

Original languageEnglish
Pages (from-to)286-309
Number of pages24
JournalBritish Accounting Review
Volume32
Issue number3
DOIs
Publication statusPublished - Sep 2000
Externally publishedYes

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Auditors
Materiality
Industry
Disclosure
Financial statements
Market risk
Industry specialization
Accounting standards
Decision making

ASJC Scopus subject areas

  • Accounting

Cite this

Auditors' recognition and disclosure materiality thresholds : Their magnitude and the effects of industry. / Iselin, Errol R.; Iskandar, Takiah M.

In: British Accounting Review, Vol. 32, No. 3, 09.2000, p. 286-309.

Research output: Contribution to journalArticle

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