Order Effects And The Audit Materiality Revision Choice

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Charles A. Brown


Order Effects, Materiality, Auditor Judgment, Belief Revision


Prior literature has examined order effects in a variety of auditor decision-making judgments.  This study expands the order effect literature by examining the impact of qualitative information on auditors’ willingness to revise materiality thresholds subsequent to the completion of audit fieldwork.  If financial reporting risk (the risk of failing to report misstatements appropriately) is present in an audit engagement, auditors may choose to revise their materiality thresholds upward, causing seemingly material misstatements to become quantitatively immaterial.  Consequently, financial reporting risk is assumed away and auditors do not appear negligent in their professional responsibilities.  The results show that auditors are in fact willing to revise their materiality judgments given qualitative information and that different levels of inherent risk present in the audit environment also affects these revisions.  In addition, the order in which the qualitative information is presented to auditors has a significant effect on the materiality judgment revisions.  More specifically, significant recency order-effects are identified in the least-experienced (newly hired staff) and most-experienced (managers and partners) auditor groups, given high and low levels of inherent risk.  Finally, the most-experienced auditor group shows the most pronounced order-effect biases.


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