Differences in Auditors' Materiality Assessments When Auditing Financial Statements and Sustainability Reports

25 Pages Posted: 15 Jan 2013 Last revised: 21 Jul 2018

See all articles by Robyn Moroney

Robyn Moroney

RMIT University; Monash University - Department of Accounting

Ken Trotman

UNSW Australia Business School, School of Accounting

Date Written: August 13, 2016

Abstract

With increased interest in voluntary sustainability reports from investors and other stakeholders, more companies are having these reports assured. The issue of what is considered material in these assurance engagements is important, and yet research on materiality has focused only on financial statement audits. This article reports the results of an experiment where auditors assess the materiality of audit differences in the same magnitude for both a financial audit and a sustainability (water) assurance engagement. Two factors, the risk of breaching a contract and community impact, are manipulated between-subjects. We find that auditors assess the materiality of an audit difference significantly higher for a financial case than for a water case. This difference is significantly greater when there is no risk of breaching a contract than when there is a risk of breaching a contract. The risk of breaching a contract has a stronger effect on the difference in auditors’ materiality assessments when there is no community impact than when there is a community impact. Overall our findings suggest that qualitative factors have a greater impact on sustainability (water) materiality assessments than on financial statement materiality assessments when an audit difference is between 5 percent and 10 percent of a relevant base. Understanding the factors that impact material judgments in sustainability reports is important as these factors affect the reliability of the reported disclosures.

Keywords: materiality, auditor judgments, sustainability assurance, water accounting

JEL Classification: M42

Suggested Citation

Moroney, Robyn and Trotman, Ken, Differences in Auditors' Materiality Assessments When Auditing Financial Statements and Sustainability Reports (August 13, 2016). Contemporary Accounting Research, Vol. 33, No. 2, 2016, Available at SSRN: https://ssrn.com/abstract=2200753 or http://dx.doi.org/10.2139/ssrn.2200753

Robyn Moroney (Contact Author)

RMIT University ( email )

Melbourne
Australia

Monash University - Department of Accounting ( email )

PO Box 197
Caulfield East, Victoria 3145
Australia

Ken Trotman

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

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