TY - JOUR

T1 - Increased materiality judgments in financial accounting and external audit

T2 - A critical comparison between German and international standard setting

AU - Müller-Burmeister, Cristina

AU - Velte, Patrick

PY - 2016/1/1

Y1 - 2016/1/1

N2 - The materiality principle supports the information function of accounting in order to enhance investors' decisions. Therefore, materiality guides the entity to present relevant information and to prevent information overload. This decision is mostly subjective and is based primarily on the individual's judgement in applying vague legal concepts. This could result in a greater expectation gap between management information and investors' understanding. The EU accounting directive 2013/34/EU standardises materiality to harmonise with International Financial Reporting Standards (IFRS). However, the German legislator did not change the national accounting rules German Commercial Code (GCC). Moreover, the new EU audit regulation (EU) No 537/2014 requires the disclosure of the quantitative level of materiality thresholds in the audit report. Guidelines remain inadequate, although they are intended to provide clearly defined rules and to avoid boilerplate checklists. Our paper focuses on a conceptual comparison of materiality between the GCC and IFRS/ISA, and on the implications for eliminating the challenge involved in information overload.

AB - The materiality principle supports the information function of accounting in order to enhance investors' decisions. Therefore, materiality guides the entity to present relevant information and to prevent information overload. This decision is mostly subjective and is based primarily on the individual's judgement in applying vague legal concepts. This could result in a greater expectation gap between management information and investors' understanding. The EU accounting directive 2013/34/EU standardises materiality to harmonise with International Financial Reporting Standards (IFRS). However, the German legislator did not change the national accounting rules German Commercial Code (GCC). Moreover, the new EU audit regulation (EU) No 537/2014 requires the disclosure of the quantitative level of materiality thresholds in the audit report. Guidelines remain inadequate, although they are intended to provide clearly defined rules and to avoid boilerplate checklists. Our paper focuses on a conceptual comparison of materiality between the GCC and IFRS/ISA, and on the implications for eliminating the challenge involved in information overload.

KW - Management studies

KW - materiality

KW - financial accounting

KW - external audit

KW - Internation al Financial Reporting Standards

KW - International Standards on Auditing;

KW - German accounting

U2 - 10.1504/IJCA.2016.10001291

DO - 10.1504/IJCA.2016.10001291

M3 - Journal articles

VL - 8

SP - 227

EP - 245

JO - International Journal of Critical Accounting

JF - International Journal of Critical Accounting

SN - 1757-9856

IS - 3/4

M1 - 3/4

ER -