Critical Importance of Materiality in Auditing

Mock et al says, ‘Materiality levels are more secret than the Coca Cola formula.’ The following paper discusses these abstracts by Porter and Mock in the context of academic research and recent developments in audit regulation and practice. Materiality is of critical importance to auditors, which academic research findings have demonstrated and linked to its nondisclosure treatment by auditors.
Information about materiality might be the surplus information most commonly wanted by account users (Messier et al., 2005). Determining materiality and related, acceptable misstatements used in choosing the nature and degree of audit processes have been kept the secret to either management or shareholders. Porter said the word ‘material’ is of critical importance to auditors because it often refers to strategic and planned choices essential for conducting an autonomous audit. The word material is important in the sense that it allows auditors to operate under audit regulations more successfully. The word ‘material’ has the ability to change decisions made by executives and major shareholders on financial bases (Porter et al., 2014, p.73). In addition, the performance of an organisation can also be influenced by the levels of materiality included and excluded in financial statements by auditors.
An organisation can consider four different situations when determining the importance of materiality in auditing (Porter et al., 2014, p. 73). Materiality is critically important for determining whether to reveal an item, change an error or misstatement in the issued financial statements, make an audit work, and compose an audit opinion (Brennan &amp. and Gray, 2005, p. 10). First, materiality is critically important for choosing whether to reveal an item because only then does an auditor find out how much effort has been made throughout the audit. Secondly, the choice to not change accounts for errors is a managerial and not accounting decision.