Industry type: a factor in materiality judgements and risk assessments

The absence of clear guidelines as to how materiality should be judged has created problems for accountants and auditors, and resulted in risks to users of financial statements. Results of past research indicate a great lack of consensus within a judgement group (e.g. auditors) and a large degree of diversity between groups (e.g. auditors v. statement preparers), with respect to the appropriate materiality threshold. Based on past research concludes that industry, an important contextual variable in materiality judgements, may be responsible for the inconsistencies in judgements in the past. The close relationship between materiality and audit risk suggests that the type of industry may have a similar impact on risk assessments. Proposes that industry effects on materiality judgements and risk assessments be further investigated. Also suggests the need for industry‐specific guidelines for materiality and audit risk.