Origins and development of materiality as an auditing concept;

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The Origins and Development of Materiality as an Auditing Concept
David C. Selley
Auditing Standards Director,
The Canadian Institute of Chartered Accountants
Introduction
"Unimportant, of course, I meant," the King hastily said, and went on to himself in an undertone, "important—unimportant—unimportant-important—" as if he were trying which word sounded best.
—C.L. Dodgson, alias Lewis Carroll
The accounting and auditing professions and users of financial statements are, of course, much more organized than the King. Or are they? Recently, accounting professions in a number of countries, including the United States, have issued authoritative pronouncements on the subject of materiality in accounting, and the United States has issued a pronouncement on materiality in an auditing context (AICPA Statement on Auditing Standards (SAS) No. 47, "Materiality and Audit Risk," referred to hereafter as SAS 47). However, no one pretends that all the problems have been resolved and, as will be outlined in this paper, further work is underway in a number of areas.
Being asked to write a paper on materiality is rather like being asked to write a love poem. If one were to research all love poems previously written one would wonder how it was possible to come up with anything new or different. The materiality situation is similar. There is an immense quantity of material on the subject from standard-setting bodies and commissions, task forces and study groups commissioned by such bodies, practising firms, authors of text books and researchers in academe and elsewhere. This activity has not been confined to the United States. One approach to a paper on the history and development of the concept of materiality would be to write an accountant's equivalent to a Whole Earth Catalogue, but that would be most uninteresting for the writer and even more so for the reader. This paper therefore is highly selective in the material that it covers and the issues that it addresses.
Until the last several years, little of the work carried out on the subject of materiality dealt specifically or at length with the auditor's use of this concept. Most of the emphasis, and probably rightly so, was on what was material in the context of annual financial statements and the users thereof. Nevertheless, there was always some recognition that the auditor was concerned in this process, even if only to indicate at the outset that the particular pronounce­ment,
study or paper did not deal with the auditor's concern on the question.
The problem is that the auditor has to be concerned with understanding
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