Materiality level in auditing

: impact and evolution

Abstract

This study aims to analyze materiality, specifically examining how auditors utilize it and the impacts and consequences it has on companies and investors. Due to the requirements of ISA700 in the United Kingdom, companies listed on the London Stock Exchange (LSE) are obligated to disclose the level of materiality applied in their audit reports. A literature review was conducted to understand previous studies contributing to a better comprehension of the materiality concept, thus identifying gaps in the field. Consequently, a lack of studies addressing how auditors use and determine materiality, as well as its various effects on audit fees and company performance, was identified. The constituents of the FTSE 350 were analyzed for the period between 2015 and 2022. With the obtained data, tests and analyses were performed to complement previous studies and examine the existence of an inverse relationship between materiality and audit risk. Additionally, the study aimed to understand if auditor changes impact materiality determination. Finally, a new study was introduced to investigate whether materiality levels affect company performance. The results obtained may provide both investors and researchers with relevant information to enhance understanding of materiality. However, contradictory findings may prompt regulatory intervention to improve how materiality is determined, thereby enhancing transparency.

Date of Award	28 Oct 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Paulo Alves (Supervisor)