Title: Increased materiality judgments in financial accounting and external audit: a critical comparison between German and international standard setting

Authors: Cristina Müller-Burmeister; Patrick Velte

Addresses: University Hamburg, Max-Brauer-Allee 60, 22765 Hamburg, Germany ' Leuphana University Lüneburg, Scharnhorststr. 1, 21335 Lüneburg, Germany

Abstract: The materiality principle supports the information function of accounting in order to enhance investors' decisions. Therefore, materiality guides the entity to present relevant information and to prevent information overload. This decision is mostly subjective and is based primarily on the individual's judgement in applying vague legal concepts. This could result in a greater expectation gap between management information and investors' understanding. The EU accounting directive 2013/34/EU standardises materiality to harmonise with International Financial Reporting Standards (IFRS). However, the German legislator did not change the national accounting rules German Commercial Code (GCC). Moreover, the new EU audit regulation (EU) No 537/2014 requires the disclosure of the quantitative level of materiality thresholds in the audit report. Guidelines remain inadequate, although they are intended to provide clearly defined rules and to avoid boilerplate checklists. Our paper focuses on a conceptual comparison of materiality between the GCC and IFRS/ISA, and on the implications for eliminating the challenge involved in information overload.

Keywords: materiality; financial accounting; external audit; International Financial Reporting Standards; IFRS; International Standards on Auditing; ISA; Germany; German Commercial Code; GCC; information overload.

DOI: 10.1504/IJCA.2016.080496

International Journal of Critical Accounting, 2016 Vol.8 No.3/4, pp.227 - 245

Received: 11 Jan 2016
Accepted: 11 Jan 2016
Published online: 26 Nov 2016 *

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