Browsing by Author "Carvalho, Liliana Manuela Esteves"
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- COVID-19’s impact on defining materialityPublication . Carvalho, Liliana Manuela Esteves; Maldonado, Isabel Alexandra Neves; Silva, Amélia Cristina Ferreira daThis study examines how the COVID-19 pandemic influenced the definition of materiality reported in the audit reports of publicly listed companies in the United Kingdom. The sample comprises firms included in the FTSE 100 index between 2015 and 2024, allowing for the distinction between the pre-pandemic, pandemic, and post-pandemic contexts. Materiality information was collected directly from audit reports, while the remaining variables were obtained from the Refinitiv Datastream database. The dependent variable corresponds to the natural logarithm of disclosed materiality, normalized by total assets (ln(OM/TA)). The main independent variable is a composite risk index (Risk_Index), constructed from proxies of leverage, losses, ROA volatility, and liquidity. Control variables include firm size, profitability, audit firm (BIG4), and governance (board independence). Models were estimated with firm and year fixed effects, using robust standard errors and additional robustness tests. The results show a negative and statistically significant association between risk and materiality, suggesting that riskier firms tend to adopt more conservative materiality. Similarly, firm size is associated with lower materiality, while profitability exerts a positive effect. Board independence also shows a negative effect, though of smaller magnitude, and the BIG4 variable has no significant impact. In the context of the pandemic, no systematic reductions in materiality were observed; instead, selective adjustments emerged, particularly related to leverage and COVID-specific variables. Overall, the findings confirm that auditors are sensitive to risk and to firms’ structural characteristics, but in a systemic shock context, the response consisted mainly of adjusting benchmarks and reference criteria rather than directly reducing materiality levels. These conclusions contribute to the academic and regulatory debate on the application of ISA 320 and reinforce the need for greater transparency in the choice of benchmarks and in the disclosure of materiality ranges.