An Analytic Approach for Determining Materiality and Audit Risk for Financial Statement Disclosures

• In Event: Materiality

Abstract

This paper provides an analytical framework for auditors and preparers to use their assessment of the informational needs of financial statement users in order to achieve the desired level of financial reporting transparency. We present a roadmap for auditors and preparers to ensure the relevance and reliability of disclosures contained in the financial statement footnotes and in management’s discussion and analysis. The model is motivated by ongoing efforts by the IAASB, the FASB, the Financial Reporting Council, and other self-regulatory and standard-setting bodies to improve financial disclosures. Our approach is also influenced by examples—good and bad—of financial reporting practices by public companies. The application of the model is illustrated with numerical examples.

Authors

• Saurav K Dutta, University at Albany, SUNY

• Dennis H Caplan, University at Albany, SUNY