Joint Impact of Materiality Guidance and Justification Requirement on Auditors’ Planning Materiality

Abstract

In this study, we examine a setting where over-reliance on structured materiality guidance leads to less appropriate materiality assessments by auditors, and investigate whether a justification requirement in the absence of accountability mitigates this effect. Results from our experiment show that audit managers make less conservative and less appropriate planning materiality assessments in the presence of structured materiality guidance, but that this detrimental effect is mitigated by the need to justify their judgments. Our study on the joint effect of these two features extends current literature on materiality judgments and has implications for audit practice.