The implications of materiality disclosures in Maltese statutory auditing

Abstract

PURPOSE: This study analysed the benefits and drawbacks of materiality disclosures in Maltese statutory auditing from the perspective of Maltese auditors, whilst measuring and explaining their resistance to such disclosures. Recommendations on the location, method, content and regulation of materiality disclosures were also elicited from Maltese auditors. DESIGN: A predominantly quantitative two-phase explanatory sequential mixed-methods research design was employed to achieve the objectives of the study. A questionnaire was first administered to Maltese auditors. Subsequently, the data collected by the questionnaire was analysed in detail and used to formulate the interview schedule which was used to conduct eleven semi-structured interviews with big-four and non-big-four audit partners in Malta. FINDINGS: The drawbacks of disclosing materiality in Maltese statutory audit reports greatly outweighed any potential benefits that might be reaped. It was confirmed that Maltese auditors generally resist disclosing materiality mainly due to its drawbacks. In addition to not disclosing materiality publicly, Maltese auditors rarely disclosed it to their clients, although some did so reluctantly. Materiality disclosures in the audit report should be avoided because the local market is not sufficiently mature and knowledgeable. Maltese auditors saw no scope for materiality disclosures for non-listed entities. CONCLUSIONS: Materiality disclosures in Maltese statutory auditing would have far more drawbacks than benefits and should therefore be avoided. Positively, restricting such disclosures to the Audit Committee of PIEs as per Article 11(2)(h) of EU Regulation No. 537/2014 limits their drawbacks and may stimulate meaningful discussions. VALUE: The findings enabled a template for materiality disclosures to the Audit Committee of PIEs in Malta as per Article 11(2)(h) of EU Regulation No. 537/2014 to be proposed. Several recommendations were also put forward.