Discussant's response to the origins and development of materiality as an auditing concept;

              Discussant's Response to
The Origins and Development of Materiality
as an Auditing Concept
Lauren Kelly
University of Washington
David Selley does an excellent job tracing the institutional history and setting of materiality. Particularly useful are his appendices where he contrasts the development of materiality in different countries, compares the status of materiality in both the accounting and auditing contexts, and examines the elements of materiality definitions found in professional pronouncements. Discussing such an extensive and complete review is a difficult task. Thus I would like to elaborate on two aspects of the materiality topic that Selley addresses but does not extensively discuss.
First, I would like to consider what research has told us about the various observations Mr. Selley makes. (For a complete review of empirical research on materiality see Holstrum and Messier, 1982.) In this connection, I will remain cognizant of Selley's opinion as stated in footnote 20 which says, "many research papers I have read conclude that further research is needed in 'X' areas. In this case, at least for the purposes of standard setting and guidance at the professional practice level, my own feeling is that little more will be required. ..." Being an academician, I do not necessarily agree, and thus would also like to consider where future research might be helpful. Second, I would like to elaborate on the integration of accounting and auditing materiality. In my opinion, this is a more difficult and perhaps more important topic.
The Materiality Concept
Most authors, researchers, and authoritative bodies agree that the mate­riality
of the accounting treatment or disclosure of an item depends upon its importance to the financial statement user. In this regard, the user is assumed to be sophisticated (intelligent and knowledgeable), and significance occurs when the accounting treatment or disclosure would affect the user's decision. Most would also agree that materiality is an accounting concept with important implications to the audit process.
Initial research focused on determining the factors or characteristics of an information item that make it significant to the user. Attributes commonly cited include the item's impact on net income, absolute size, cumulative amount, impact on trends, the nature of the item, uncertainty regarding the issue, firm-specific characteristics, and environmental condition.
Early studies were ex-post descriptive, attempting to infer from financial statements the quantitative thresholds used by preparers and auditors in
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