Differences in Auditors' Materiality Assessments When Auditing Financial Statements and Sustainability Reports
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With increased interest in voluntary sustainability reports from investors and other stakeholders, more companies are having these reports assured. The issue of what is considered material in these assurance engagements is important, and yet research on materiality has focused only on financial statement audits. This article reports the results of an experiment where auditors assess the materiality of audit differences in the same magnitude for both a financial audit and a sustainability (water) assurance engagement. Two factors, the risk of breaching a contract and community impact, are manipulated between‐subjects. We find that auditors assess the materiality of an audit difference significantly higher for a financial case than for a water case. This difference is significantly greater when there is no risk of breaching a contract than when there is a risk of breaching a contract. The risk of breaching a contract has a stronger effect on the difference in auditors' materiality assessments when there is no community impact than when there is a community impact. Overall our findings suggest that qualitative factors have a greater impact on sustainability (water) materiality assessments than on financial statement materiality assessments when an audit difference is between 5 percent and 10 percent of a relevant base. Understanding the factors that impact material judgments in sustainability reports is important as these factors affect the reliability of the reported disclosures.
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Moroney and Trotman (2016) find that auditors apply tighter materiality thresholds for financial statements than for CSR reporting.
“They find that auditors apply tighter materiality thresholds for financial statements than for CSR reporting.”
From Mandatory CSR and sustainability reporting: economic analysis and literature review (2021) · cites this paper as Moroney and Trotman (2016)
Qualitative factors, such as closeness to breaching a contract or the presence of special interest groups, affect the assessment of CSR materiality.
“Qualitative factors (e.g., closeness to breaching a contract or the presence of special interest groups) affect the assessment of CSR materiality.”
From Mandatory CSR and sustainability reporting: economic analysis and literature review (2021) · cites this paper as Moroney and Trotman (2016)
Moroney and Trotman (2016) argue that differences in auditor liability, lack of guidance or experience, and different justifications for CSR versus financial audit differences contribute to their findings.
“The authors argue that differences in auditor liability, lack of guidance or experience, and different justifications for CSR versus financial audit differences contribute to these findings.”
From Mandatory CSR and sustainability reporting: economic analysis and literature review (2021) · cites this paper as Moroney and Trotman (2016)
Cites
The Case of Sustainability Assurance: Constructing a New Assurance Service <sup>*</sup>
O’Dwyer, B. (2011) · Contemporary Accounting Research · doi:10.1111/j.1911-3846.2011.01108.x · Cited by 321 · see citing works
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Mandatory CSR and sustainability reporting: economic analysis and literature review
Christensen, H. B., Hail, L., & Leuz, C. (2021) · Review of Accounting Studies · doi:10.1007/s11142-021-09609-5 · Cited by 1,923 · see citing works
- Authors
- Moroney, R., & Trotman, K. T.
- Affiliations
- Monash University (AU)
- UNSW Sydney (AU)
- Venue
- Contemporary Accounting Research
- Publisher
- Wiley
- Published
- 2015-08-29
- Volume
- 33
- Issue
- 2
- Pages
- 551-575
- ISSN
- 0823-9150 (ISSN-L)
- 1911-3846
- OpenAlex
- W3125777979
- Cited by
- 127
- References
- 1
- Citations by year
- 2026: 13 · 2025: 11 · 2024: 24 · 2023: 12 · 2022: 13 · 2021: 19 · 2020: 10 · 2019: 9 · 2018: 10 · 2017: 3 · 2016: 1 · 2014: 1 · 2013: 1
- FWCI
- 20.61
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Locations
- Contemporary Accounting Research (publishedVersion)
- SSRN Electronic Journal (acceptedVersion)
- RMIT Research Repository (RMIT University Library) (submittedVersion)
- Figshare (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Auditing, Earnings Management, Governance
- Social Sciences › Business, Management and Accounting › Strategy and Management › Corporate Social Responsibility Reporting
- Social Sciences › Business, Management and Accounting › Accounting › Accounting and Financial Management
- Keywords
- materiality assessment, auditors, sustainability reports, assurance engagements, financial statement audit, community impact, qualitative factors, disclosure reliability
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