Environmental event materiality and decision making

Jeffrey Faux

Managerial Auditing Journal, 2012, vol. 27, issue 3, 284-298

Abstract: Purpose - The purpose of this paper is to investigate environmental event materiality and user decision making, providing an empirical basis for reporting entities disclosures regarding material environmental events that further users' ability to make decisions. Design/methodology/approach - A vignette describing an environmental event facing a company was provided to participants who were asked whether the event was deemed to be material and, second, whether the event would initiate an action or no action decision. The use of an experimental approach reveals results regarding the decision‐making process of users rather than relying on respondents stating preferences. Findings - Results indicate that user groups consider the environmental event to be material at a threshold of 6 percent. The determination of the event as material results in a “no action” decision that suggests isolated events of this size may not result in “action” decisions. The study has implications for policy makers and entities disclosing environmental events. Research limitations/implications - The experimental research approach adopted is primarily limited by the specific contextual nature of the event. Originality/value - Entity reporting of environmental events is receiving unprecedented levels of interest and this paper contributes to the materiality research and practice in this area.

Keywords: Organizations; Decision making; Financial reporting; Information disclosure; Material environmental event; In‐isolation events; Materiality discretions; User perspectives (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:02686901211207500

DOI: 10.1108/02686901211207500

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