The Materiality Mystery

The Gap in GAAS

Julian Jacoby, CPA (retired), and Howard B. Levy, CPA

This article is intended primarily to provide an airing of omissions and other flaws in generally accepted auditing standards, primarily regarding the use of materiality in auditing. It is also intended to clarify the relationship of materiality in an auditing context to its underlying statistical sampling concepts. The authors hope it will help auditors understand these relationships and concepts, to better use them in their audits and help standards setters and others interested in strengthening auditing standards refocus their agendas on the weaknesses in the current standards. This article will not discuss the recent, highly controversial FASB proposals on accounting materiality.