Audit materiality reported level

: the case of the UK

Abstract

This study considers how auditors apply materiality, taking advantage of recent changes to ISA700 (UK) which requires disclosure of the level of materiality in the audit report for all companies listed on the London Stock Exchange (LSE). The literature shows the relevance of the concept of materiality, but does not address how it is used by auditors. This gap is the result of the lack of information available for analysis and non-universal regulations, which allows us to benefit from the mandatory disclosure requirement for LSE listed companies. Our analysis is exploratory and aims to find evidence of the effects and relationships anticipated by the audit literature and regulations. We analysed the period between 2016 and 2021 and the results present evidence on some determinants that affect the level of materiality, in particular our analysis addresses the inverse relationship between audit risk and materiality, i.e., the higher the audit risk, the lower the materiality should be. We present detail that auditors have adapted to the increased audit risk due to the pandemic in 2019 and on the effect of audit fees on materiality. Finally, an analysis of the impact on audit risk materiality of an auditor transition is provided. The disparities in results motivate an intervention by regulators to determine how auditors should determine materiality.

Date of Award	14 Jul 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Paulo Alves (Supervisor)