Do auditors' perceptions of materiality change in response to approaching deadlines?

Thumbnail Image
Journal Title
Journal ISSN
Volume Title
University of Alabama Libraries

This study examined the impact that deadline pressures have on auditors' perceptions of materiality. I use the context of the audit of Internal Controls over Financial Reporting (ICFR) to determine whether the year-end deadline impacts auditors' assessment of control deficiencies. I also considered how the perceived cause of the increased deadline pressure (i.e., whether the timing of testing is the auditor's fault) may further affect the auditors' judgment of significance. To evaluate these decisions, I used a 3x2 between-subjects experiment, manipulating time deadline pressure (low, high, and post-deadline) and the cause of the deadline pressure (auditor fault or not). I measured the auditors' assessment of the materiality of an identified control deficiency, as well as the amount of audit evidence the auditor would consider sufficient for retesting remediated controls. Findings suggest an interactive effect on auditors' materiality assessments of errors/deficiencies when they identify the error under high deadline pressure and the auditor is at fault for creating the higher pressure, resulting in a lower assessment of the errors' materiality under these conditions. Further, auditors are willing to test fewer items when the auditor is at fault for creating deadline pressure, as well as accepting a higher deviation rate for the sample (i.e., the auditors will accept more errors/deficiencies in fewer sample items). However, auditors increased their materiality judgments of identified errors when deadline pressure was no longer present (after year-end), even though incentives to issue an unqualified opinion still exist. This study extends existing literature by examining the temporal effects on materiality, specifically the auditor's perceptions and application of materiality. It also complements recent archival research examining consequences of adverse opinions on the audit of ICFR (e.g., Cassell et al., 2011; Hammersley et al., 2010) by considering how pressures and incentives to avoid such consequences influence the audit of ICFR.

Electronic Thesis or Dissertation