 The disclosure of audit materiality in the auditor's report and its impact on user perceptions and decisionsDominik Claßen Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL) Abstract: This cumulative dissertation examines the role, determinants, and consequences of audit materiality disclosures, with a particular emphasis on their function as transparency and signaling mechanisms in capital markets. Audit materiality is a core concept in auditing, as it determines audit scope, audit effort, and ultimately audit quality. Despite its central importance, materiality has traditionally remained an internal audit planning parameter and has only recently become subject to public disclosure in a small number of jurisdictions through expanded auditor reporting regimes. Positioned at the intersection of audit transparency, audit quality, and signaling theory, this dissertation contributes to the emerging literature by providing integrated archival and experimental evidence on how materiality is applied by auditors in practice and how disclosed materiality information is interpreted by different sophisticated user groups. The first paper provides large‑sample archival evidence from the United Kingdom, one of the few jurisdictions that mandate public disclosure of quantitative audit materiality. Analyzing auditor’s reports, the study documents substantial and systematic heterogeneity in auditors’ materiality judgments, including variation in benchmarks, percentage rates, and absolute materiality thresholds across audit firms, industries, and engagement characteristics. The findings show that materiality disclosures frequently exceed minimum regulatory requirements and that auditor changes are associated with more conservative materiality determinations, highlighting the discretionary nature of materiality and its potential to convey engagement‑specific information about auditors’ professional judgment and audit approach. The second paper experimentally investigates the signaling role of materiality disclosures for internal governance actors. Focusing on supervisory board members, the study examines how disclosed materiality thresholds and benchmarks affect perceived audit quality, the likelihood of auditor reappointment, and the perceived need for additional auditor explanations. The results show that supervisory board members correctly understand the inverse relationship between materiality and audit effort and systematically incorporate disclosed materiality information into their judgments. Lower materiality thresholds are interpreted as signals of higher audit quality and lead to more favorable evaluations of the auditor, while the choice of benchmark plays a limited role as long as it does not affect the absolute materiality level. The third paper extends the analysis to capital market intermediaries by examining financial analysts’ responses to quantitative materiality disclosures in the auditor’s report. Using a controlled experiment, the study analyzes whether the presence and level of disclosed overall materiality affect analysts’ assessments of audit quality, auditor reappointment likelihood, and credit‑related judgments, and whether these effects interact with auditor tenure. The findings demonstrate that materiality disclosures are behaviorally and economically relevant for financial analysts and function as audit‑quality signals that are interpreted jointly with other observable audit characteristics. Lower disclosed materiality thresholds are associated with more favorable perceptions and decisions, consistent with a signaling interpretation, while the incremental informativeness of materiality disclosures depends on the surrounding information environment. Taken together, the three papers provide complementary evidence on audit materiality disclosures from the perspectives of auditors, internal governance actors, and capital market intermediaries. The dissertation demonstrates that materiality disclosures convey economically meaningful information, but that their interpretation is inherently context‑dependent and shaped by user expertise and competing signals. By integrating supply‑side disclosure practice with demand‑side user interpretation within a unified signaling framework, the findings contribute to the literature on audit quality, audit transparency, and disclosure‑based signaling, and inform ongoing regulatory debates on the benefits and limitations of expanding auditor reporting requirements. Date: 2026-07-20 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:161481 Access Statistics for this paper More papers in Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL) Contact information at EDIRC. |
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