Publication Type
Journal Article
Version
submittedVersion
Publication Date
9-2023
Abstract
Using a broad sample of U.K. firms that are required to disclose auditor materiality thresholds under the International Standards on Auditing (U.K. and Ireland) 700, we examine whether the auditor materiality threshold is associated with audit quality. We document that a lower materiality threshold is associated with higher audit quality, as measured by lower absolute discretionary accruals, higher accruals quality, and a lower propensity to just meet or beat analysts’ earnings expectations. We also find some evidence that the negative association between the materiality threshold and audit quality is attenuated when the audit committee is more effective and when the auditor is more economically dependent on the client, and the negative association is more pronounced when management has a stronger incentive to manage earnings. Overall, our study extends the limited studies on large-sample archival evidence on the implications of audit materiality thresholds on audit outcomes.
Keywords
Materiality threshold, audit report, audit quality
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Reporting and Disclosure
Publication
Accounting Horizons
Volume
37
Issue
3
First Page
147
Last Page
170
ISSN
0888-7993
Identifier
10.2308/HORIZONS-2020-108
Publisher
American Accounting Association
Citation
GOH, Beng Wee; LEE, Kiat Bee Jimmy; LI, Dan; LI, Na; and WANG, Muzhi.
Auditor materiality threshold and audit quality: Evidence from the Revised ISA 700 in the United Kingdom. (2023). Accounting Horizons. 37, (3), 147-170.
Available at: https://ink.library.smu.edu.sg/soa_research/2026
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2308/HORIZONS-2020-108