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Auditor Materiality in Expanded Audit Reports: More (Disclosure) is Less

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  • Karen‐Ann M. Dwyer
  • Niamh M. Brennan
  • Collette E. Kirwan

Abstract

The United Kingdom (UK) Financial Reporting Council (FRC) introduced expanded audit reports to improve audit report disclosures and render audits more transparent to financial statement users. This study examines audit materiality threshold disclosures, providing descriptive evidence of how auditors disclose materiality information in UK audit reports. This research uses manual content analysis (i) to assess auditors’ benchmarks and the percentages auditors apply to those benchmarks. The analysis examines (ii) auditors’ use of non‐GAAP benchmarks, including non‐recurring and recurring item exclusions and (iii) auditors’ rationales for their benchmark choices. The research finds that auditors choose a wide variety of benchmarks and apply a wide range of percentages to the chosen benchmarks. Non‐GAAP adjustments are pervasive. Auditors’ rationales for benchmark choices include that the benchmark is a financial statement performance measure, and the benchmark eliminates volatility. The authors question whether the FRC's expanded disclosures have met its transparency objectives and concludes that ‘more (disclosure) is less’.

Suggested Citation

  • Karen‐Ann M. Dwyer & Niamh M. Brennan & Collette E. Kirwan, 2023. "Auditor Materiality in Expanded Audit Reports: More (Disclosure) is Less," Australian Accounting Review, CPA Australia, vol. 33(1), pages 31-45, March.
    • Handle: RePEc:bla:ausact:v:33:y:2023:i:1:p:31-45
    DOI: 10.1111/auar.12392
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    References listed on IDEAS

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    1. Michael Kend & IIias Basioudis, 2018. "Reforms to the Market for Audit and Assurance Services in the Period after the Global Financial Crisis: Evidence from the UK," Australian Accounting Review, CPA Australia, vol. 28(4), pages 589-597, December.
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    4. Preeti Choudhary & Kenneth Merkley & Katherine Schipper, 2019. "Auditors’ Quantitative Materiality Judgments: Properties and Implications for Financial Reporting Reliability," Journal of Accounting Research, Wiley Blackwell, vol. 57(5), pages 1303-1351, December.
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    7. Michael Kend & Lan Anh Nguyen, 2022. "Key audit risks and audit procedures during the initial year of the COVID-19 pandemic: an analysis of audit reports 2019-2020," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 37(7), pages 798-818, January.
    8. Andrew Bird & Stephen A Karolyi & Thomas G Ruchti & Phong Truong, 2021. "More is Less: Publicizing Information and Market Feedback [Illiquidity and stock returns: cross-section and time-series effects]," Review of Finance, European Finance Association, vol. 25(3), pages 745-775.
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    10. Lauren C. Reid & Joseph V. Carcello & Chan Li & Terry L. Neal & Jere R. Francis, 2019. "Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom," Contemporary Accounting Research, John Wiley & Sons, vol. 36(3), pages 1501-1539, September.
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    15. Keith A. Houghton & Christine Jubb & Michael Kend, 2011. "Materiality in the context of audit: the real expectations gap," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 26(6), pages 482-500, June.
    16. repec:eme:maj000:maj-07-2021-3225 is not listed on IDEAS
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    Cited by:

    1. Yongliang Wu & Zihui Li & Min Zhang & Shengbao Zhai, 2023. "Auditor Assignments and Audit Quality," Australian Accounting Review, CPA Australia, vol. 33(2), pages 160-187, June.
    2. Yaowen Shan & Sue Wright, 2023. "Editorial," Australian Accounting Review, CPA Australia, vol. 33(1), pages 3-4, March.

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