The impact of qualitative information on auditors' materiality judgments

The audit function requires professional judgment on the part of the auditor. Central to the audit function and auditor judgment is the concept of materiality. Audit standards identify the importance of considering both quantitative and qualitative information when making materiality assessments, but these standards fail to provide specific guidelines. Although researchers have studied quantitative materiality thresholds to determine which are most appropriate, few studies have examined qualitative information and its affect on materiality judgments, and none has addressed whether qualitative information causes auditors to revise materiality judgments.; This dissertation empirically examines the impact of qualitative information and the presentation order of that information on auditors' materiality judgments. Specifically, this dissertation examines the impact of qualitative information on auditors' willingness to revise evaluative 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. In this case, financial reporting risk is assumed away and auditors do not appear negligent in their professional responsibilities.; The methodology employs an anchor-and-adjustment mechanism of belief revision by utilizing the Belief-Adjustment-Model proposed by Hogarth and Einhorn (1992). An online instrument was developed and was administered to professional auditors from a Midwest CPA firm for data collection purposes.; The results show that auditors are in fact willing to revise their evaluative materiality judgments given qualitative information. The findings also reveal that different levels of inherent risk present in the audit environment affect auditors' materiality judgment revisions. In addition, the order in which the qualitative information is presented to auditors has a significant effect on their materiality judgment revisions. More specifically, significant recency order-effect biases are identified across all auditor experience levels, given high and low levels of inherent risk. Finally, contrary to expectations, the level of auditor experience does not mitigate the order-effect biases.