Discussion of The Effects of Reporting Auditor Materiality Levels Publicly, Privately, or Not at All in an Experimental Markets Setting.

The article presents a discussion of effects of reporting auditor materiality levels publicly, privately, or not at all in an experimental markets setting, auditor's choices of the magnitude of materiality and the level of audit risk are important indicators of audit quality. In recent years, a number of scholars and practitioners have proposed that at least the auditor's choice of materiality level be reported publicly to alert investors to the degree of precision in financial statements. This assumption places the auditor in the role of providing a forecast of actual earnings in the form of a posterior probability distribution which takes into account his/her prior probability assessments and a probability, P, that actual earnings, A a, is within the range R± M. This role conflicts with auditing standards which prohibit the auditor from rendering a forecast or attesting to the achievability of management's forecast. By assuming that traders should use the auditor's posterior distribution for actual earnings, the author deliberately ignores the auditor's incentive to conduct the audit at a lower level of assurance using a greater magnitude of materiality than reported.