Materiality in Government Auditing

Current practice regarding materiality in government audits under generally accepted auditing standards varies widely. In this empirical study, we investigate whether government auditors agree on an appropriate base for calculating materiality and what percentages they apply. In a government context, the probability of client financial failure (and subsequent discovery of material financial statement misstatements) is unknown or very low. This relatively stable environment is characterized by competitive audit pricing practices and, in general, an undue emphasis on price in auditor selection. Our study provides information about materiality levels implicit in current practice and is valuable to auditors in audit planning and performance evaluation