Improving Audit Quality: A Judaic Approach to Applying Materiality Concepts

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Abstract

Materiality is a key factor in conducting effective audits. However, while many studies have shown that auditors do not always apply materiality effectively; over-relying on quantitative, specifically financial, measures, and under-recognizing qualitative factors, this study provides a new perspective. We use the Wells Fargo case to demonstrate a failure in applying materiality and then discuss how Judaism interprets and applies materiality concepts. Rather than prescribe specific guidelines, we discuss how such concepts can add insight to modern auditing, thus improving materiality judgments. The Judaic approach to materiality is context-specific and considers how seemingly minor quantitative differences can result in qualitatively material differences.

Authors

• Alan Reinstein, Wayne State University

• Shlomo S. Sawilowsky, Wayne State University

• Eileen Z Taylor, North Carolina State University