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Econometric Model for Readjusting Significance Threshold Levels through Quick Audit Tests Used on Sustainable Companies

Author

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  • Veronica Grosu

    (Department of Accounting, Auditing and Finance, “Ștefan cel Mare” University of Suceava, 13 Universitatii Street, 720229 Suceava, Romania)

  • Dorel Mateș

    (Department of Accounting, West University of Timişoara, 4 Vasile Parvan Boulevard, 300223 Timișoara, Romania)

  • Monica-Laura Zlati

    (Department of Accounting, Auditing and Finance, “Ștefan cel Mare” University of Suceava, 13 Universitatii Street, 720229 Suceava, Romania)

  • Svetlana Mihaila

    (Department of Accounting, Academy of Economic Studies of Moldova, 2005 Chișinău, Moldova)

  • Marian Socoliuc

    (Department of Accounting, Auditing and Finance, “Ștefan cel Mare” University of Suceava, 13 Universitatii Street, 720229 Suceava, Romania)

  • Marius-Sorin Ciubotariu

    (Department of Accounting, Auditing and Finance, “Ștefan cel Mare” University of Suceava, 13 Universitatii Street, 720229 Suceava, Romania)

  • Simona-Maria Tanasă

    (Department of Accounting, Auditing and Finance, “Ștefan cel Mare” University of Suceava, 13 Universitatii Street, 720229 Suceava, Romania)

Abstract

Given the present-day economic situation, which is characterized by economic destabilization as a result of the pandemic crisis, auditors are facing the issue of establishing materiality, which is partly based on the fact that a certain level of financial misstatement influences the decisions of the involved parties. The aim of the present study is to suggest an econometric model for readjusting significance threshold levels through quick audit tests used on sustainable companies. The main objectives of the study are to emphasize the causal relationship between the manifestation of constant errors in financial reports and the inconsistency of audit opinions, as well as to put into practice the causal relationship that exists between the improvement of the audit function and sustainability itself, given companies’ crisis situation. In this particular context—based on the entire sample of companies listed in the Bucharest Stock Exchange (BVB), Bucharest Exchange Trading Plus category (BET Plus)—we estimated a number of financial indicators between 2009 and 2018 so that we could determine the materiality of accounting errors identified by auditors in order to express an opinion regarding the reliability and accuracy of financial reporting. The study’s key findings show that, given the economic crisis, the significance threshold level is a volatile test and it needs to be reconsidered taking into account the decline in the quality of reporting and, indirectly, the disclosure of financial information. From a holistic point of view, we believe that our study will have a significant impact on both practitioners and regulatory entities by shifting the qualitative approaches of analysis itself towards key prudential regulations stipulated by International Standard on Auditing (ISA) 320, ISA 450 and ISA 700. The study also highlights the process of refining information sources that can impact the significance, understanding and materiality of business decisions.

Suggested Citation

  • Veronica Grosu & Dorel Mateș & Monica-Laura Zlati & Svetlana Mihaila & Marian Socoliuc & Marius-Sorin Ciubotariu & Simona-Maria Tanasă, 2020. "Econometric Model for Readjusting Significance Threshold Levels through Quick Audit Tests Used on Sustainable Companies," Sustainability, MDPI, vol. 12(19), pages 1-32, October.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:19:p:8136-:d:422931
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    References listed on IDEAS

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    Cited by:

    1. Ionel Bostan, 2021. "Special Issue “Audit and Financial Control Tools Aimed at Ensuring the Sustainable Performance of Organizations”," Sustainability, MDPI, vol. 13(18), pages 1-4, September.

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