Materiality Judgments in Swedish Auditing: A Policy-Capturing Study of Aggregate and Account-Type Variation in Auditor-Investor Alignment

Sammanfattning

This study examines whether auditors’ materiality judgments align with investor-implied materiality thresholds and whether such alignment varies across financial statement account types. Using a policy-capturing experimental design, the study compares the judgments of 63 Swedish auditors and 88 unsophisticated investors across a series of financial reporting scenarios involving different account types and misstatement magnitudes. Logistic regression models are employed to analyse aggregate differences in materiality judgments and account-type-specific variation. The findings show that auditors apply significantly higher materiality thresholds than investors on average, indicating that auditors require larger misstatements before classifying them as material. This suggests the existence of an auditor-investor materiality gap within the Swedish context. The results further indicate that investor-implied materiality judgments vary across account types, as misstatements related to interest expenses are more likely to be considered material than equivalent misstatements in revenue. However, no statistically significant evidence is found that the auditor-investor gap differs across account categories. Overall, the study contributes to the materiality literature by extending the analysis beyond aggregate threshold differences and highlighting the role of account characteristics in shaping materiality judgments. The findings also raise questions regarding whether current audit materiality practices fully reflect the user-oriented perspective embedded in ISA 320. 2