Materiality & the audit report: It\u27s time for disclosure

The concept of materiality has received a lot of attention in recent years as high profile accounting scandals have plagued financial reporting. Auditing Standards from the PCAOB and the AICPA require that early in an audit engagement the auditor establish a preliminary level of materiality. This preliminary level of materiality, a dollar value, is used to determine the extent of audit testing that is performed. It can be changed as the audit progresses and key financial statement numbers change. Under current standards neither the preliminary nor final materiality number is disclosed. They are known only to the auditor. This paper examines the reasons why the materiality level is so carefully concealed. It is also suggests the benefits that would accrue to users of the financial statements if the auditor\u27s materiality level were disclosed in the auditor\u27s report