Keywords

Materiality; Fraud Risk; Investor Perception; Financial Statement Misstatement; SAB No. 99; Audit Judgement

Abstract

Often auditors are asked to adopt the reasonable investor perspective in their materiality evaluations however, there is no consensus regarding what investors deem to be material. This can lead to confusion in the markets. In fact, past studies have shown how taking an investor perspective can backfire and may result in more leniency and fewer misstatements being deemed material by auditors. This leniency can, potentially, result in financial statements that mislead investors. The aim of this paper is to address the reasonable investor perspective to achieve a more complete understanding of an investor’s viewpoint. This study also incorporates the effect of fraud on investors’ perceptions of materiality. This will provide insight into how fraud (vs simple errors) affects investors’ perceptions in the worst-case scenarios of material misstatements. To better understand the investor, this study explores how investors responded to misstatements of varying relative sizes. Further, the study incorporates several variables, including fraud, to gauge the impact that qualitative factors might have on investors’ materiality perceptions. The study’s findings show that fraud greatly increases the level of concern shown by investors when it comes to misstatements in addition qualitative factors outlined by the SEC such as, executive compensation and earnings targets, also result in more concern for investors.

Thesis Completion Year

2026

Thesis Completion Semester

Spring

Thesis Chair

Trompeter, Gregory

College

College of Business

Department

Kenneth G. Dixon School of Accounting

Thesis Discipline

Accounting

Language

English

Access Status

Open Access

Length of Campus Access

None

Campus Location

Orlando (Main) Campus

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