Critical Perspectives On Accounting: (TD$FIRSTNAME) Carla (TD$FIRSTNAME.E) (TD$SURNAME) Edgley (TD$SURNAME.E)

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Critical Perspectives on Accounting xxx (2013) xxxxxx
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Critical Perspectives on Accounting

journal homepage: www.elsevier.com/locate/cpa
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A [1_TD$IF]genealogy of accounting materiality
Q1 [TD$FIRSNAME]Carla[TD$FIRSNAME.]
[TD$SURNAME]Edgley[TD$SURNAME.] *
Q2 Cardiff Business School[2_TD$IF], United Kingdom
A R T I C L E I N F O
A B S T R A C T
Article history:
Received 30 May 2012
Received in revised form 30 May 2013
Accepted 2 June 2013
Available online xxx
This study explores the relevance of the historical dimensions of the materiality concept and
its past role. Metaphors applied to materiality provide insights into conditions and traces of
power that have shaped its discursive conguration. Rather than viewing materiality as the
gradual development of a technical idea over time, metaphorical discourses suggest that it
has been constituted as multiple categories of knowledge, with divergent roles, as: a moral
responsibility; a solution to the problem of over-auditing; a solid epistemic foundation for
nancial reporting; a scientic technique; a quantitative rule of thumb; a risk management
concept; and a mysterious shield. The malleable nature of the concept has allowed the
profession to realign and reinvent it to meet shifting priorities and challenges. Divergence in
the trajectories of materiality discourses is relative to certain conditions, events, actors and
nancial scandals. The paper draws on the metaphor of performance, to interpret materiality
as a performative activity at the crux of truth games about making visible, controlling,
taming, managing and hiding translation errors in accounting inscriptions. The extent to
which a genealogical analysis identies different styles of reasoning that have shaped its
meaning over time has implications for debate about its future development[.]FDI$_T5
2013 Elsevier Ltd. All rights reserved.
Keywords:
Critical
Social
Materiality
Foucault
Genealogy
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1. Introduction
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Materiality is a fundamentally important accounting concept (Messier et al., 2005), generally understood to involve the
determination of the importance of a matter for nancial reporting purposes (FASB, 1975). It also has a fuzzy ontology that
has persistently evaded precise codication in professional guidance (Power, 1997a,b; Ling Lee, 2004). Decisions about
materiality are a matter of professional [6_TD$IF]judgement and no set of rules can be applied to determine thresholds in all
circumstances (Gray and Manson, 2008; IFAC, 2010a,b). Nevertheless, it is a seemingly time-honoured concept (Lackritz,
2004; Wilcox, 2007), familiar to agents involved in the preparation, audit, analysis and regulation of nancial statements
(European Securities and Markets Authority [7_TD$IF] ESMA, 2012).
Scholarship has explored the nature and operationalisation of materiality. Detailed literature reviews have been
conducted by, amongst others, [8_TD$IF]Iskandar and Iselin (1999), Messier et al. (2005) and Brennan and Gray (2005). Yet, scant
information exists about its beginnings. Little was written about materiality until after the Second World War (Hicks, 1964)
and the importance of its past role, in a social and professional context, has perhaps been overlooked.
The current study seeks to address this gap by exploring materialitys historical ontology (Hacking, 2004). Historical
ontology is a form of enquiry that considers how concepts retain traces of the inuence of their historical dimensions.1 To
* Correspondence address: Accounting and Finance Section, Cardiff Business School, Aberconway Building, Colum Drive, Cardiff [3_TD$IF]CF10 3EU, United
Kingdom. Tel.: +44 029 20 876567; [4_TD$IF]mobile: +44 07968 686297.
E-mail address: EdgleyCR@cardiff.ac.uk.
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This term was originally put forward by Michel Foucault, concerned with truth through which we constitute ourselves as objects of knowledge, with
power, through which we constitute ourselves as subjects acting on others and with ethics through which we constitute ourselves as moral agents. Ian
Hacking expands this term to examine all manner of constitutings and the relevance of the historical dimensions of concepts. Some problems with concepts
may be traced back to their past (Hacking, 2002, p. [9_TD$IF]37).
1045-2354/$ see front matter 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.cpa.2013.06.001
Please cite this article in press as: Edgley C. A [1_TD$IF]genealogy of accounting materiality, Crit Perspect Account (2013), http://
dx.doi.org/10.1016/j.cpa.2013.06.001
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this end, the paper undertakes a genealogical analysis, drawing on Foucault, to investigate conditions that have shaped
our knowledge of materiality. Foucault developed genealogy as a tool to query what lies beneath the emergence of
discourses. His ambition was to fragment and de-familiarize beliefs that we tend to feel are without history (Foucault,
1980, p. [10_TD$IF ]139). Concepts are not the gradual, seamless, teleological development of ideas over time (Foucault, 1970) but
are congured through discourses (Macintosh, 2009). Therefore, truths provided for us by our discourses have a history
contingent upon certain past events, happenings, ruptures and struggles between power blocs (Foucault, 1986; Kearins
and Hooper, 2002; Macintosh, 2009). By power, Foucault was referring, not to a specic authority, but to anonymous
arrangements that exercise control over systems of thought (Hacking, 2004). Our beliefs change, relative to systems of
domination that are powerful enough to inuence ways in which we think about the world (Macintosh, 2009; Jones
et al., 2011).
The objective of this historical analysis is therefore not to ask what materiality is or unveil misconceptions or hidden
truths in discourses but to question how others have sought to construct it (Foucault, 1986; [1_TD$IF]Bartleson, 1995; Hacking, 2004).
The focus is on the constitutings of materiality (Hacking, 2004), particularly on the conditions, events, traces of power and
expert discourses that have shaped its existence.
As a precedent for this type of critical history, prior scholarship has investigated the past of other key accounting concepts
and practices. Miller and OLeary (1987) interpreted standard costing and budgeting as an apparatus of control over the
performance of individuals. Sikka and [12_TD$IF]Willmott (1995) explored the power of independence in building and defending a
professional accounting jurisdiction. Maltby (2000) identied links between prudence and the practice of the social
regulation of capital. Power (2012) explored fraud risk as a system of intense organisational governance and discipline. The
current study reects on the role of materiality as attempts by competing powers and expertises (Samiolo, 2012) to make
visible, mediate, control, tame, manage, ignore, hide or downplay errors and ambiguities in the process of translating the
elements of an organisational context into accounting inscriptions (Robson, 1992).
The specic contribution of the paper lies in developing two, related ideas. First, different expertises and metaphorical
discourses have constituted materiality as a multiplicity of knowledge objects including: a moral responsibility; a
commercial solution to over-auditing; a solid thing and epistemic foundation for reporting; a scientic technique; a rule of
thumb, a risk management tool, a mysterious professional lens and shield. Second, the paper explores how assemblages of
factors, actors, powers and events have shaped the trajectories of materiality discourses.
The paper attempts to adopt a novel method. Discursive gures of speech are used, as a linguistic tool, to unearth clues
about relevant genealogical factors. Metaphors and similes complement a genealogical approach because they provide an
insight into traces of power, systems of thought and truth games that underlie meanings. Themes within metaphors applied
to materiality and modes of use (whether strategic, reective or critical) demonstrate how its construction has not been the
product of any single, dominant, primary logic. Multiple factors have sculpted its complex ontology. The study also builds on
the seminal work of Carpenter et al. (1994) who were amongst the rst to explore materiality as a social and behavioural
rather than a technical or cognitive phenomenon.
The ndings of the current study seek to contribute to the accounting literature. Materiality is often referenced, as if its
meaning, technical discourses and expertises that have constructed it, are solid and timeless. This critical analysis questions
such assumptions. The paper may also have a practical signicance for practitioners in understanding how materiality has
historical dimensions, shaped by different, at times conicting, expertises. Viewing materiality decisions as a performance by a
group of actors, where expertises are drawn upon and ranked, may broaden horizons within which materiality decisions are
reached.
Section 2 of the paper contextualises the study and begins with a review of the materiality concept in accounting and
auditing. Section 3 explains why a Foucauldian methodological approach provides a relevant framework for an analysis of
materiality and discusses the method of analysis adopted. Section 4 evaluates themes in metaphor applied to materiality to
probe factors that have underpinned the development of materiality discourses, with a discussion of ndings in [13_TD$IF]Section 5.
Concluding remarks summarise the paper in [13_TD$IF]Section 6.
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2. Materiality in accounting and auditing
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The following section provides a context for the current study. First, the obscure beginnings of materiality and early
references to the concept are considered. Problematics associated with inconsistencies and vagueness in denitions are
discussed. Second, themes in scholarship on the subject are explored. Sections 3 and 4 attempt to suggest that a genealogical
analysis may assist reexivity about materiality by considering its historical dimensions and systems of thought that have
shaped it as an object of knowledge.
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2.1. Background
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Materiality is a pluralistic term (OED, 2010) representing, in a simple sense, the stuff of the world (Dale, 2005). As a
metaphysical construct, it refers to an abstract notion of materiality, relative to ideas about immateriality (Miller, 2005).
Q3 Metaphorically, the term denotes substance or importance in evaluating criteria and reaching judgments (in the OED, [14_TD$IF]2010;
Bentham, 1789; Kennedy, 1860; Stephen, 1824). A related notion of a test of materiality (or signicance) has spread into
professional discourses such as law and accounting.
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In accounting, the term material, as an adjective, rst appeared in accounting and auditing texts at the turn of the
twentieth century and in US guidance, issued by the American Institute of Certied Public Accountants (AICPA) (Newman
and Mellman, 1967). Accounting historians have assumed that the concept was legalistic in origin, as a sense of obligation2 in
setting out material facts (Holmes, 1972; Lee, 1984). References to material facts have been traced back to UK legal cases in
the 1860s and the Companies Act 19853 (Holmes, 1972, p. 46). The word material has also been used, in a simplistic sense, to
refer to the importance of instructions for auditors (Dicksee, [16_TD$IF]1892).4 The term was probably introduced to the US in the late
19th Century by emigrating British accountants. It was not formally dened at this time although legal denitions existed
(Holmes, 1972).5
As the accounting profession began to develop formalised guidance in the US, particularly from 1938 onwards [19_TD$IF](Dyckman
and Zeff, 1984; Zeff, 2009), a discursive shift took place. Denitions of a technical understanding of materiality [20_TD$IF]materialised.
From the outset, different ways of thinking about materiality were apparent. For example, Kohlers dictionary for
accountants in the US dened materiality as[21_TD$IF]:
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the characteristic attaching to a statement, fact, or item whereby its disclosure or the method of giving it expression
would be likely to inuence the judgment of a reasonable person, (Kohler, 1952, p. 317).6
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A few years later, the American Accounting Association (AAA) produced the following denition,
An item should be regarded as material if there is reason to believe that knowledge of it would inuence the decisions
of an informed investor, (AAA, 1957, p. 8).
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Kohler dened materiality as a characteristic attaching to an item. In contrast, the AAA linked the concept with
professional [6_TD$IF]judgement, under an if condition. Furthermore, the notion of Kohlers reasonable person signals different
information needs compared to an informed investor. Such differences raise important questions about broader genealogical
and not just technical factors that lie beneath divergences in discourses, which this study seeks to examine.
Many subsequent denitions of materiality have been produced, by professional accounting bodies, the Securities and
Exchange Commission (SEC), common law and statute but none have been in complete agreement (Brennan and Gray, 2005).
This heterogeneity is specically mentioned in International Standard on Auditing (ISA) 320, nancial reporting
frameworks may discuss materiality in different terms. ISA 320 no longer attempts to dene materiality but states[2_TD$IF]:
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they (nancial reporting frameworks) generally explain that: misstatements, including omissions, are considered to be
material if they, individually or in the aggregate, could reasonably be expected to inuence the economic decisions of
users taken on the basis of the nancial statements; judgments about materiality are made in light of surrounding
circumstances and are affected by the size or nature of a misstatement, or a combination of both, (IFAC, 2010a,b, para 2).
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Brennan and Gray (2005, p. [23_TD$IF]4) have identied shared characteristics of materiality. Companies are required to disclose a
true and fair view in law but this is subject to uncertainty. Materiality allows a degree of exibility. First, materiality
decisions are a matter of professional [6_TD$IF]judgement. Second, information is considered material if its omission or misstatement
could inuence the economic decisions of users, for whose benet the concept operates. However, no source of guidance has,
to date, codied the concept precisely (Power, 1997a,b), with variations around the subject of the denition and the degree of
uncertainty involved (Brennan and Gray, 2005).
The concern of this paper is with an examination of factors that have underpinned different discourses about this elusive
concept. In scoping the study, it is important to mention that materiality is relevant in both accounting and auditing. These
meanings are related but distinct (Thomas and Krogstad, 1979; Flint, 1988). Initial decisions about accounting materiality
are made by management in preparing nancial statements. Where a nancial audit is undertaken, independent decisions
about thresholds are reached by auditors (Gray and Manson, 2008). The focus of this paper is on materiality in auditing
because it is through nancial audit that the concept is linked to ideas about fair representation and quality in reporting (Lee,
1984; Brennan and Gray, 2005).
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2.2. Prior scholarship
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Not surprisingly, materiality has attracted academic interest. Scholarship has sought to explore what materiality is and
how it is operationalised. Empirical research, in the 1950s investigated quantitative variables involved in decisions. Early
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The public accountant is bound to see that all material facts are set out in his certicate, (Dickinson, 1908, in Holmes, 1972, p. [15_TD$IF]46). Holmes suggested
that a sense of legal obligation is implied in this context by the term bound.
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Holmes (1972, p. 46) mentioned the following examples In any prospectus no misstatements or concealment of any material fact ought to be
permitted, Central Railway of Venezuela v Kisch (1867), in addition, Lord Daveys committee in updating the Companies Act 1985 reported every contract or
fact is material which would inuence the judgement of a prudent investor.
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The printed instructions cannot be more than a mere outline of an Auditors duties but they can be so framed as to be of material assistance to the audit
clerks, Dicksee [17_TD$IF](1892, p. 19).
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[18_TD$IF]Holmes (1972) did not provide any examples but legal denitions did certainly exist. For example, Whartons (1883) legal dictionary explained the term
material as the subject matter of the statement (or concealment) related to a fact or circumstance which would be important to the decision to be made as
distinguished from an insignicant, trivial or unimportant detail.
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Kohler was the editor of the Accounting Review, the Journal of the American Association of University Instructors (Dyckman and Zeff, 1984).
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studies, using case study questions and questionnaires, identied the percentage effect of an item on net prot as a dominant
determinant in judgments (Woolsey, 1954). Later studies conrmed this nding but signicant variations in materiality
thresholds were observed (Bernstein, 1967). Concerns about divergence led to numerous calls for more detailed professional
guidance and case studies (Reininga, 1968; Frishkoff, 1970).
Later research, from the 1970[24_TD$IF]s and 1980s onwards, queried the circumstances of auditor materiality judgments,
especially cues and factors inuencing decisions. Findings varied because of the different items and contexts studied but a
number of themes were apparent (Messier et al., 2005). First, materiality was a relative notion where the size of an item
relative to net prot was a primary cue in decision-making ([25_TD$IF]Iskandar and Iselin, 1999; [26_TD$IF]Holstrum and Messier, 1982; Messier
et al., 2005). Second, qualitative factors inuenced judgments, particularly experience. Although auditors were homogenous
in their beliefs about materiality as a signicant error, they scaled variables differently at various levels of management
(Ward, 1976). Experienced individuals applied more scrutiny in non-routine transactions and experience was inuential in
less structured tasks (Messier, 1983; Carpenter and Dirsmith, 1992). Firm size and industry factors were further factors that
affected auditor judgments (Pattillo and Siebel, 1974; Krogstad et al., 1984; Wright and Wright, 1997). Higher materiality
levels were observed amongst partners of large audit rms (Messier, 1983; Chewning et al., 1989). Personal characteristics,
such as age and place of employment could also affect materiality decisions (Estes and Reames, 1988). Moriarty and [27_TD$IF]Barron
(1976) found divergence in auditor judgments in evaluating quantitative and qualitative factors.
Third, materiality judgments varied between management, auditors and users. These heterogeneous groups
demonstrated different thresholds because of their divergent motivations (Firth, 1979; Holstrum and Messier, 1982;
Messier et al., 2005). Differences were also apparent in thresholds between auditors and the courts (Jennings et al., 1987).
Variation in [6_TD$IF]judgement amongst preparers, auditors, information users and accounting enforcers remains a concern amongst
practitioners, academics and lawyers and has been described as a dilemma and a source of insecurity (Reininga, 1968;
Jennings et al., [28_TD$IF]19841985, 1987; Ling Lee, 2004).7
Interdisciplinary, qualitative research has investigated materiality not as a technical or cognitive phenomenon but in a
social and organisational context. Carpenter et al. (1994), in their seminal study, adopted a cultural anthropology approach
to exploring materiality, viewing human thought as a culturally coded product. Differences were observed in the number of
cues used by less structured, organic rms versus highly structured mechanistic rms. Individuals became differentiated by
their hierarchical position suggesting that materiality is a social, behavioural phenomenon and the consequence of social
interaction in the context of rm culture.
Critical studies have highlighted a lack of transparency in the concept of materiality. The term is not well specied or
applied consistently, leaving the profession open to charges of mystication and paternalism. Auditors reach authoritative
judgments about thresholds for the benet of users but without any responsibility to disclose the criteria that underpin
decisions (Roberts and Dwyer, 1998; Brennan and Gray, 2005). The institutionalisation of the concept in accounting and
auditing standards, with a focus on processes rather than truth telling, has resulted in a view that auditors are being
materialistic, calculating consequences rather than considering duties (Shaub, 2005).
Materiality is thus an enigmatic problematic. On the one hand, it is linked to the concept of a true and fair view and quality
in nancial reporting (Chastney, 1975; Lee, 1984). Contrarily, it is criticised for being secretive, paternalistic and
materialistic, only nominally serving the interests of users of nancial information (Brennan and Gray, 2005). Section 3
suggests that a genealogical analysis may assist reection on the concept.
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3. A genealogical approach to exploring accounting materiality
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The following section attempts to explain why a genealogical approach facilitates a critical history of materiality.
Macintosh (2009) has drawn attention to the effectiveness of analysing accounting concepts through a Foucauldian lens.
Foucault distrusted histories that rationalise concepts as the gradual renement of ideas over time. Instead, he viewed
history and the production of knowledge as a struggle between powers attempting to impose systems of domination
(McNay, 1994). Certain belief systems prevail and inuence ways in which we see the world whilst others are
overpowered (Hook, 2001). According to Foucault, we acquire knowledge through the medium of discourses.
Knowledge therefore operates as a form of power that exercises control over how we construct ourselves, interpret the
world and act. Our beliefs may seem familiar but on investigation are logically dependent for their existence on certain a
priori conditions, words, events, actors and foundations (Jones et al., 2011). These conditions that underpin the
possibility of knowledge were referred to by Foucault, as an episteme or in his later work, an apparatus (Foucault, 1981;
Power, 2012).
For Foucault, the task of the historian is to unearth the foundations of every day concepts, a process he termed
archaeology. He focussed his analysis on discursive statements, as a network of rules, through which concepts become
meaningful. An archaeological approach probes disruptions and investigates how the apparent continuous development of
meaning is crossed by discontinuous discursive formations (Dreyfus and Rabinow, 1983, p. 106).
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Materiality remains a topical and controversial subject. A recurring theme within recent discussions at the European Enforcers Coordination [29_TD$IF]Sessions
has revolved around the divergence in views between preparers, auditors, information users and accounting enforcers about its application. The European
Securities and Markets Authority (ESMA) has been charged with seeking and evaluating views on materiality in nancial reporting (ESMA, 2011, 2012).
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Foucault, in his later work, developed Nietzsches idea of genealogy as an archaeological tool to investigate concepts as a
form of social power (Dean, 1994).8 A genealogy evaluates the signicance of rhetorical battles that underlie meanings
where the past may reveal traces of the inuence that power has had upon truth games (Rabinow, 1984). Foucault used
similar methods to practice archaeology and genealogy. Both focus on the same conditions or elements that provide a
foundation for knowledge (OFarrell, 2007). Archaeology queries how forms of knowledge and meanings are created by
networks of statements. The focus is on gaps and ruptures in archives (Macintosh, 2009). A genealogy probes the inuence of
power upon knowledge and ideas about truth (OFarrell, 2005). This involves exploring knowledge, and its operation, as a
form of dispersed power that permeates micro-practices. The analysis is on connections and discontinuities between
discourse and practice (Burrell, 1998). The genealogist is a diagnostician who concentrates on the relations of power,
knowledge, (Dreyfus and Rabinow, 1982, p. 105). A genealogical approach to exploring materiality thus seeks to investigate
the inuence of power upon discursive truth games.
To conduct the current study, professional accounting guidance, journals and literature, textbooks and academic papers
about materiality were sourced, extending to law and social science literature and landmark cases on materiality in the US
and UK. Electronic search engines were used to locate academic papers.9 A vast (although not exhaustive) body of data was
collected covering cases and discourses from mid nineteenth case law and emerging discourses around the beginning of the
twentieth century onwards to the present day. It is inevitable that material has been overlooked, especially information that
has not been digitalized. However, a sufcient quantity of data was gathered that is broadly representative of different
networks of statements about materiality, for conducting a genealogical analysis.
A mechanism was needed to lter and analyse the data in a meaningful way, consistent with a genealogical approach.
Foucault was careful not to prescribe specic methods but a genealogy should consider traces of organisational
arrangements and events (Dean, 1994, p. [30_TD$ IF]35). Given a striking abundance of rich gures of speech applied to materiality
in discourses, metaphors and similes were used as a scoping mechanism to unearth clues about relevant genealogical
factors. Metaphors can be viewed as a transference in meaning where we think of one thing in terms of another (Walters
and Young, 2008). They can take divergent forms (grammatically as a noun or adjective) and may be cognitive,
allegorical, paralogical or even contradictory. Similes also make associations but allow ideas to remain more distinct (as
a comparison).
An analysis of metaphor complements a genealogy by unearthing underlying conditions and events through which
meanings are assigned to objects, concepts and discourses. Nietzsche specically linked critical discursive analysis with
metaphor, there is no real expression, and no real knowing apart from metaphor, (Nietzsche[31_TD$IF], 1872/1999, 149, p. 50). All
language and therefore all truth and error is metaphoric in origin (in Gibbon, 2012, p. 204). Lakoff and Johnson (1980, p. [32_TD$IF]103)
explain that metaphorical concepts provide a way of conceptualising a pre-existing reality, structuring what we perceive and
how individuals relate with each other. Metaphors point to systematic underlying thoughts and hidden meanings. They
inuence our beliefs and dene our perceptions and experiences as implicit images or cognitions about our perceived
realities, (Suddaby [3_TD$IF]et al., 2011, p. 242).
Metaphor has been used extensively in scholarship because it provides an insight into perceptions of reality. Metaphors
can be strategic or tactical. They may be employed to highlight certain features of an object or idea, whilst suppressing others
(Lakoff and Johnson, 1980, p. 109). The use of metaphors can create new ways of thinking about objects (Lakoff and Johnson,
1980, p[34_TD$IF]. 110). New modes of description can consequently bring about new possibilities for action (Hacking, 2002).
In accounting, the benet of asking how metaphors represent cues (signalling thought processes, values and/or cultural
changes) has been noted by Dirsmith and Haskins (1991), Amernic and Craig (2009)10 and Gibbon (2012). Robson (1992) has
emphasised the importance of asking not just what but how and why metaphor draws attention to processes of
organisational behaviour and control. Metaphors may construct reality from a particular point of view and be selectively
employed (Walters and Young, 2008). Competing metaphors have been observed to provide an insight into truth games over
contested meanings of audit, embedded within social relations of power (Sikka et al., 1998).
Methodological approaches to metaphor analysis are varied and controversial. Some claim that analysis should be subject
to a form of scientic measurement, whilst others suggest that classication is a matter of interpretation, which is often the
case in the humanities (Steen et al., 2010). This study intentionally adopted the latter, interpretative approach. Metaphors or
transferences were identied in discourses, whether used strategically, descriptively or unconsciously and were grouped
according to subject matter. Themes were evident amongst these metaphors (where materiality has been thought of in terms
of people, physical objects, scientic ideas, techniques or abstract concepts). Groups of metaphors and their manner of use
could be linked to distinct metaphorical discourses, styles of reasoning (Hacking, 2004) and expertises that have shaped
materiality as categories of knowledge.
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In his genealogy of morality, Nietzsche called into question the value of values and conducted a history of morality. Foucault developed these insights
into a critical problematisation, where truth has a history (Dean, 1994; Jones et al., 2011). A genealogy, as a critical history, is opposed to the search for
origins but focuses in a meticulous manner on factors that have shaped beliefs (Kearins and Hooper, 2002).
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The method used was simple but effective, using search engines such as ABI inform. The content of individual academic journals was also searched,
especially those with long a publishing history including the Journal of Accountancy, The Accounting Review, The Journal of Accounting Research,
Accounting Organizations and Society and Critical Perspectives on Accounting amongst others. These papers in turn provided references to other useful data
and publications.
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Examining how metaphors are used in various accounting contexts can be productive and illuminating,(Amernic and Craig, 2009, p[35_TD$IF]. 882).
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The term expertise refers to discourses through which members of a professional community demonstrate expert
knowledge in professional writings. Through expertises, members align themselves with the aims of their professional
community. Expertises thus play a role in discursive truth games in the production of knowledge through promoting the beliefs
and tacit values of the relevant disciplinary culture (Bhatia, 2004). In accounting, expertises describe technologies of discovery
and techniques involved in the measurement, calculation and classication of data (Robson, 1991). Expertises are therefore
relevant to an examination of truth games in shaping beliefs about materiality. In addition, the study attempted to probe the
uid assemblages11 of factors, actors and events that have underpinned the emergence of different discourses on the subject.
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4. A Genealogy of accounting materiality through metaphorical discourses
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The ndings discussed in this section suggest that materiality is not a term, with a core meaning. Rather, distinct themes
within imagery and metaphorical discourses imply that materiality has been constituted as multiple categories of
knowledge with divergent discursive trajectories and roles. The paper classies these knowledge objects as: a social
responsibility; a solution to the problem of over-auditing, a solid epistemic foundation for auditing; a tolerable error; a rule
of thumb; a risk management technique; and a mysterious professional lens and shield. The assemblages of actors, factors,
events and expertises that have shaped these heterogeneous discourses are explored.
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4.1. Materiality and socio/legal imagery [36_TD$IF] a responsibility
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A strong theme within imagery is humanistic, where materiality has been objectivised as a moral responsibility to protect
investors. The gure of mysterious, mythical man for whose benet materiality should operate, as a safety test, is deeply
embedded in discourses. This humanistic imagery is socio-legalistic and draws attention to a legal apparatus, as an arm of
the state that has shaped materiality as an ethical responsibility. A capitalist rationale and a need to protect the material
wealth of investors from the damaging consequences of misleading information underlie this construction.
A striking metaphor that provides an insight into the constitutings of materiality as a knowledge object in relation to a
moral responsibility, personied the concept as a child of law. . .and at most, a foster child of accounting, (Holmes, 1972, p.
49).12 Two observations about power games are relevant here. First, materiality has been fostered upon the Profession.
Second, it is a vulnerable concept requiring due care but institutional and hierarchical boundaries are clearly drawn. A foster
child is a ward of court, in the day-to-day care of guardians but ultimately the courts make all the important decisions and
remain in loco parentis.
This image accords with observations about early (and continuing) legal inuences on the profession. As accountants began
to establish themselves as providers of validation services, informality and inconsistencies in approach between practitioners,
led to widespread criticism of the profession and scandals in the UK and US (Loft, 1986; Zeff, 2009). It was following the
catastrophic Wall Street Crash in 1929 that a federal power, the US Securities and Exchange Commission (SEC) stepped in to
protect investors. Materiality was congured as a regulation imposed upon the work of accountants (Rutherford, 2007),
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The term material, when used to qualify a requirement for the furnishing of information as to any subject, limits the
information required to those matters as to which an average prudent investor ought reasonably to be informed before
purchasing the security registered, (SEC, Regulation S-X, Rule 3-06, [38_TD$IF]1933).13
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Through this rule, the SEC gave visibility to, and empowered the mysterious image of the average prudent investor.14
Materiality should operate as a test, for his safety, to leave him impartial, unbiased and objective in his actions (Hewitt,
1977). The idea of materiality as an ethical responsibility to protect the mythical investor was rooted in economic and political
policy objectives at the time, concerned with rebuilding investor condence, economic recovery and the continuing growth
of capitalism. Rule 3-06 was issued to respond to strong calls for enhanced disclosures and to address public concerns about
investor vulnerability.15
Legal discourses and the courts have continued to play an inuential part in codifying and socialising an idea of
materiality, amongst practitioners, as a safety test for the mythical investor. These constitutings have been episodic,
triggered by disputes about items that could be construed as a peril16 for the mythical man, if not given visibility. The
traditional association in professional accounting guidance between materiality and signicant errors and omissions for the
11
The term assemblages refers to exible heterogeneous connections between people, organisations, events, happenings and words, drawing on the work
of Deleuze. The appeal of an idea of assemblage is that it does not attempt to privilege the importance of any one level of organisation (at a macro or micro
level) over another (DeLanda, 2006).
12
Holmes was an inuential US academic historian and a practitioner. He was a manager of Peat Marwick Mitchell and Co. in Boston, a member of the
American Institute of Certied Public Accountants and British member of the Association of Certied Chartered Accountants. He was also a historian, on the
editorial board of the Journal of Accountancy[37_TD$IF].
13
Regulation S-X set out the form and content for nancial statements to be led under the Securities Act of 1933 and the Securities Exchange Act of 1934.
14
An image that can be traced back to the common law of fraud and cases at the turn of the twentieth century (Hewitt, 1977).
15
Changes in the organisational control of companies had been taking place (Berle and Means, 1932), with an increasing separation between management
and ownership. This, combined with a growing appetite amongst the public to speculate in purchasing stocks, resulted in widespread calls from prominent
academics and contemporary authors, for the SEC to expand disclosure requirements and protect investors ([39_TD$IF]Weiss and Schwartz, 1977).
16
A term used by the Attorney general, Sir William Howitt in Rex v Kylsant (p. 87) see note 20 below.
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safety of the reasonable investor, can be traced back to judicial discourses in a landmark UK case, Rex versus Kylsant [40_TD$IF](1932).17
At the heart of the dispute, was the practice of supplementing prot measurement through undisclosed transfers from secret
reserves. Reserve accounting was considered prudent (and useful for management) by eminent practitioners18 (Edwards,
1976). The court viewed the matter from an investors perspective, where non-disclosure could imply that an investment
was safe, when the position was otherwise. In the Court of Criminal Appeal, Mr. Justice Avory stated,
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the document as a whole may be false not because of what it states, but because of what it does not state, because of
what it implies, (p. [41_TD$IF]92).
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Although the company auditor was acquitted, the ruling highlighted serious aws in practitioner [6_TD$IF]judgement (Ashton,
1986). The impact of the case, which Camfferman (1998) has compared to a bomb that disrupted the accountancy world, was
interesting in two respects. First, accountants were thereafter expected not just to comply with the law but to use ethical and
moral [6_TD$IF]judgement in making materiality decisions. The case reportedly had a greater subsequent impact on audit practices
than all previous case law and legislation (Camfferman, 1998). Second, the idea of a material item was extended to omitted
data and not just errors (Edwards, 1989). This style of reasoning underpinned the future development of materiality in
professional guidance.
The image of the mythical, mysterious investor has permeated accounting discourses and has encouraged practitioners to
reect on the workings of materiality decisions,
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Who is this beholder, or prudent man, or reasonable person? We must identify him, for our materiality decisions
ultimately depend upon how we perceive him. In effect, we have to assume his position in order to judge how nancial
statements or particular items therein will inuence him. At best, this is no easy task, (Hicks, 1964, p. [42_TD$IF]159).
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An important element in decision-making therefore involves nding credible evidence to justify an approach,
in a type of guessing game as to what and how much inuences the [6_TD$IF]judgement of a reasonable person [43_TD$IF](Rose et al.,
1970, p. 139).
Not surprisingly, truth games have been played in debating the mythical mans identity and his needs. Discursive
shifts in his prole are traces of battles between practitioners and the courts. The courts have at times used the term
reasonable man19 instead of prudent investor (Jennings et al., [4_TD$ IF]19841985). However, the reasonable man test implies
a lower materiality threshold because knowledge about capital markets is not assumed (Jennings et al., [4_TD$IF]19841985). The
American Accounting Association (AAA) re-characterised him as an informed investor, An item should be regarded as material
if there is reason to believe that knowledge of it would inuence the decisions of an informed investor[F]I$DT5_4 (AAA, 1957).
This move towards an informed investor signals a growing expertise among users but also a desire by the profession to
tailor judgments to the needs of experienced users, as a rational collective (Young, 2006). Individual perceptions of
materiality amongst uninformed investors may be unreasonable, with resource and legal liability implications for
practitioners[46_TD$IF]:
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305
The possible effect of misstatements on specic individual users, whose needs may vary widely, is not considered,
(IFAC, 2010a,b, paragraph 2).20
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317
Over the course of decades, battles over the boundaries of materiality as a moral responsibility have produced a maze of
black letter law (Jennings et al., [47_TD$IF]19841985; Bean and Thomas, 1990).21 Viewed through a Foucauldian rather than a legal
lens, this body of judicial expertise operates loosely as a form of dispersed power/knowledge that encourages practitioners to
reect upon the way in which they organise themselves as willing, moral agents. Where practitioners have tended to view
materiality in quantitative terms, the courts have considered qualitative and performance issues (Bean and Thomas, 1990).
For example, the ruling in the landmark US case, Escott versus BarChris Construction Corp. (1968)22 linked materiality with a
performance imperative for all practitioners within a rm to observe internal as well as professional guidelines in reaching
materiality judgments. TSC Industries Inc. v. Northway Inc.23 provided knowledge of materiality as a likelihood that an
omitted fact would be viewed as signicantly altering the total mix of information made available. It was therefore
important for practitioners to ascertain whether investors were sufciently empowered by information to vote responsibly.
Viewed through humanistic imagery, legal expertises socialise practitioners into framing materiality judgments in a
prescribed manner, mediated by an external authority (Rabinow, 1984). The conditions for materiality are thus dependent
17
Rex v Kylsant [1932] 1 KB 442.

Evidence supporting this opinion was provided during the hearing by an inuential and prominent member of the profession, Lord Plender, ex President
of the ICAEW and a partner with Deloittes, as an expert witness.
19
As cited in Kohlers early dictionary denition (1952).
20
Judgments about the extent of auditor legal liability have widened and narrowed over time. The important ruling in Caparo Industries plc v Dickman
[1990] 1 All ER 568 would suggest that the courts in the UK, view the duty of care of an audit rm as being to shareholders as a group.
21
The attention of interested readers is directed to Karmel [48_TD$IF](1978), Bean and Thomas (1990) and Ling Lee (2004).
22
Escott v. BarChris Construction Co. 283 F. [49_TD$IF]Supp. 643.
23
TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976). The case concerned the omission of certain facts from a proxy statement. This later became
known as the Basic v. Levinson test (Basic, Inc. v. Levinson, 485 U.S. 224, 1988) of whether the magnitude of the event and the probability of it happening are
high enough that the information becomes material under the foregoing standard.
18
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on the needs of the mysterious, mythical man, as a prominent member of the SEC declared, Although materiality has been
dened differently in different contexts, all of these denitions are grounded on the legitimate expectations of the
reasonable investor, (Karmel, 1978).24
The accounting profession has been socialised into shaping practices to respond to legalistic expectations[50_TD$IF]:
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In the end, however, auditors may be answerable for the quality of their work in a court of law and therefore the level
at which they set the materiality level is highly likely to be highly inuenced by what they can believe can be justied
in court, ([51_TD$IF]Gray and Manson, 2008, p. 411).
As Dreyfus and Rabinow (1983) explain[52_TD$IF]:
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To understand power in its materiality, its day to day operation, we must go to the level of the micro-practices, the
political technologies in which our practices are formed, (p. [53_TD$IF]185).
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333
334
An extensive network of statements about materiality has therefore been constituted through a legal apparatus.
However, accounting and legal denitions have not fully converged, despite calls that the courts might be more likely to
abide by a universal materiality standard if a specic accounting denition could be developed (Bean and Thomas, 1990). In
the US, where a clearer judicial codied discourse on accounting materiality has emerged than in the UK (Sherman, 2010)25
lawyers still comment on the vagueness of accounting denitions (Ling Lee, 2004). This lack of a complete agreement
between legal and accounting understandings is partly to be explained by the existence of competing metaphorical
discourses that have shaped materiality as multiple categories of knowledge.
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4.2. Materiality [54_TD$IF] a cost/benet idea and a solution
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339
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343
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Other metaphors promoted by practitioners have positioned materiality as a category of commercial knowledge and a
cost/benet solution to the problem of over-auditing. As providers of a service and commodity, practitioners have an interest
in securing the material value of their labour (Sikka et al., 1998; Power, 1997a,b). A central question linked to nancial audit
has always been how much testing should the auditor do (Power, 1992). The economics of auditing in the early Twentieth
Century forced auditors to be selective about audit work (Power, 1992) and notions of efciency were inuencing business
practices (Miller and OLeary, 1987).
A group of US academics, with links to the profession, interpreted materiality as an effective, practical ltering
mechanism for trivia, Materiality means simply this: if it doesnt really matter, dont bother with it, (Hicks, 1964, p[5_TD$IF]. 158). A
lens that facilitated expediency within audit was considered vital (Frishkoff, 1970).26 Bernstein agreed:
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The concept of materiality is part of the wisdom of life. Its basic meaning is that there is no need to be concerned with
what is not important or with what does not matter. Mans work is burdensome enough without his having to pay
attention to trivia, (Bernstein, 1973, p. 68).
Expertises linked materiality with the competent, efcient organisation of practitioner time[57_TD$IF]:
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350
A lack of understanding of the materiality concept can result in over-auditing by the conscientious professional,
(Fritzemeyer [58_TD$IF]and Carmichael, 1973, [59_TD$IF]p. 3).
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354
In the UK, the materiality concept was deemed incompatible with a true and correct view of nancial statements (De
Paula, 1948). A shift to a true and fair view, introduced in the UK Companies Act 1947 (Evans, 2010) allowed an idea of
materiality to develop that complemented a more exible audit opinion (Lee, 1984). Both in the UK and US, materiality was
strategically linked with utilitarian and efciency logics[60_TD$IF]:
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358
if nancial statements are to be prepared and examined with anything approaching reasonable economy. . .without
such a rule, unwarranted amounts of time would almost certainly be spent on insignicant matters, and nancial
statements would undoubtedly be cluttered with useless or unimportant information, obscuring the necessary and
important facts and relationships they are intended to convey, (Hicks, 1964, p. [61_TD$IF]158).
To legitimise the term, it was suggested that materiality was widely used in business[62_TD$IF]:
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363
To help keep the subject in perspective. . .the concept is widely and frequently used. For example, when a business
executive, applying the technique of management by exception, cuts through to the matters of signicance, he is
recognizing materiality. When the president of a corporation, presenting non-nancial data in reports to stockholders,
prunes away details, he is recognizing materiality, (Hicks, 1964, p. [42_TD$IF]159).
24
Roberta Karmel, was a Commissioner of the SEC. This quote is from a national speech to the investor relations institute, New York, 1978.
In the UK, materiality is a pluralistic term in law, extending to the materiality or signicance of a crime in criminal law or the signicance of a fact. In the
US, in fraud statutes, the core denition of material information is the well-recognized total mix of information test. Under the total mix test, courts ask
whether there is a substantial likelihood that a reasonable investor would have viewed the misrepresented information, or disclosure of omitted fact(s), as
having signicantly altered the total mix of information available to the investor (Sherman, 2010).
26
Assistant Professor, University of Oregon[56_TD$IF].
25
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Practitioners portrayed materiality as a form of knowledge that balanced good [6_TD$IF]judgement with value for service and
clarity in reporting. Over-auditing was a burden and over-disclosure was pessimistic (Jennings et al., [4_TD$IF]19841985). Such
views have become mythologised over time[63_TD$IF],27
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When we (all of us: the press, companies, lobbyists, Congress) talk about the level of burden that accounting rms
have been placing on corporations these past ve years. . .due to the signicantly increased amount of time that audits
are taking. . . trying to tease out exactly why they are taking longer and why more people are involved is
difcult. . .When I ask, I get a host of different but related answers. . .They appear to have lost any sense of the timehonoured accounting concept of materiality, (Wilcox, 2007).
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A network of statements, where the visibility of a material item resembles an index of time and trouble in relation to the
amount in question, (Jeffries, 1981) has a focus on the material value of the audit and its role as an organising concept. Two
logics appeared to underpin expertises promoting this role. First, materiality constituted a solution to inefciency, reducing
time wasting in relation to unimportant details. Second, it enhanced the quality of nancial statements for users by
eliminating clutter. The melding of these two logics echoes observations that rms are caught between two logics,
commercialism (a need to develop their economic capital) and [6_TD$IF]professionalisation, maintaining the traditional cultural and
symbolic capital of the profession, in the public interest. Although these logics are diametrically opposed, they depend upon
each other for success (Malsch and Gendron, 2013).
380
4.3. The reication of materiality as expert knowledge, a solid object and technique
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406
Other conceptual metaphors, employed by the profession, have portrayed materiality as a thing of substance, a technical
term, a solid object and a doctrine. Given the weak knowledge base upon which the craft of audit has developed (Power,
1997a,b, p. [67_TD$IF]6), an understanding of materiality as a solid object or authoritative technique has helped to convey an
impression of substance to auditor [6_TD$IF]judgement.
This role, which perhaps resembles impression management, is strikingly visible in the rhetorical entrenchment of the
term material in professional guidance in the UK from the 1940[68_TD$IF]s to the early 1980s. In response to concerns about a lack of
clarity in accounting principles and calls for guidance (interestingly, not from leading audit practitioners but from
accountants outside the profession) the ICAEW issued the N Series of Accounting Principles, between 1942 and 1969 (Zeff,
2009). Amongst 192 pages of guidance, there were 175 references to the word material. This repetition rhetorically
positioned materiality as a technical term, implying importance or substance but scant detail was provided about its
meaning.
In the early 1970[69_TD$IF]s, following a series of critical reports about auditor performance (Humphrey et al., 1992), the Auditing
Practices Committee (APC) was established. Its outputs, which included the rst set of auditing standards, have been deemed
protective, rhetorical and overly concerned with appearances and public reassurances (Hopwood, 1990; Humphrey et al.,
1992). There were 126 references to materiality peppered throughout these standards (Lee, 1984), which, along with the
frequent repetition of other vague technical terms such as adequacy, relevance, reliability, sufciency and judgement did
more to standardise presentation than provide useful detail (Humphrey et al., 1992, p. [70_TD$IF]48).
Materiality has also been discursively depicted as a solid structure and has [20_TD$IF]materialised as one of the cornerstones of
accountancy, (Frishkoff, 1970; Lee, 1984).28 A cornerstone is the rst stone set in the construction of a building. It
determines the position of all other stones and the entire structure. This metaphor reied materiality as an epistemic
foundation for the entire audit process and disclosures. The image was used by the Advisory Committee on Corporate
Disclosure in its 1977 report to the SEC, The materiality concept is the cornerstone of the disclosure system established by
the federal securities laws.
It was assigned two reporting functions as a principle and a standard,29 at a time when investors were concerned about
ethics in reporting (Weiss [71_TD$IF]and Schwartz, 1977). Other metaphors of authority, in the form of a doctrine and rules, have
helped to congure materiality as a code, that underpins the quality of information[72_TD$IF]:
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408
if nancial statements are[73_TD$IF]. . . to be meaningful and useful, such a doctrine (of materiality) is indispensable. Without
such a rule. . ., (Hicks, 1964, p[74_TD$IF]. 158)
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412
Reication and rhetorical positioning of materiality as a matter of expertise and professional knowledge have enabled the
concept to emerge, in a Foucauldian sense, as a sculpted, product of professional power (Power, 1997a,b). Promoting the idea
of materiality as a solid, guiding foundation for audit helps the profession and similarly, regulatory agencies, such as the SEC,
to reassure the public about the quality of nancial reporting and the substance of professional [75_TD$IF]judgement.
27
For example SEC Staff Accounting Bulletin 99, refers "a great deal of the time might be spent during the accounting process considering insignicant
matters[64_TD$IF]. . . If presentations of nancial information are to be prepared economically on a timely basis and presented in a concise intelligible form, the
concept of materiality is crucial," (SAB 99, note [65_TD$IF]50).
28
In a review of the signicance and implications for audit of materiality published by the ICAEW.
29
As a principle for the inclusion and exclusion of information in investor oriented disclosure documents and as a standard for determining whether a
communication omits or misstates a fact of sufcient signicance that legal consequences should result (Advisory Committee on Corporate Disclosure,
1977).
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4.4. Materiality as an object of scientic knowledge
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415
416
417
418
419
Another theme amongst metaphors, linked to science and standardisation, reveals how the profession has objectivised
materiality as an acceptable level of error in reporting. Scientic metaphors have depicted materiality as a technique that
measures, calculates and determines the visibility of errors. With the rise of systematic audit processes, such as statistical
sampling, from the late 1950[76_TD$IF]s onwards (Power, 1997a,b, p. [7_TD$IF]85) calculative logics were increasingly used by practitioners to
compute materiality thresholds. As the profession promoted its expertise in providing a neutral, technical point of view
(Sikka and Willmott, 1995), it began to enhance the scientic authority of audit processes and [6_TD$IF]judgement (Power, 1992),
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421
Let us dene materiality in accounting thus: the relative, quantitative importance of some piece of nancial
information, to a user, in the context of a decision to be made, (Frishkoff, 1970, p. [78_TD$IF]116).
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423
Materiality was associated with a tolerable or acceptable error, based on scientic, systematic sampling processes. This
picture persists in current auditing texts and professional guidance[79_TD$IF]:
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425
When testing amounts, a tolerable error is equal to the materiality level set by the auditor, (Gray and Manson, 2008,
p. 419).
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427
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431
Calculative logics have assisted the profession in trying to transcend a subjective view of decision-making, by embedding
judgments in neutral criteria (Samiolo, 2012). Scientic processes added credibility but more importantly, calculability to
the technical formulation of materiality judgments. To control errors within accounting inscriptions, numbers and statistical
methods provided a code, backed by scientic process.
Even after statistical sampling methods lessened in popularity in the auditing community, guidance setters in the US and
UK have continued to use metaphors associated with measurement,
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434
Materiality judgments are concerned with screens or thresholds. Is an item, an error, or an omission large enough,
considering its nature and the attendant circumstances, to pass over the threshold that separates material from
immaterial items? (FASB, 1980, paragraph 126).
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437
438
439
440
441
442
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444
Materiality was represented in SFAC 2 as a pervasive, base constraint, underpinning all other concepts (FASB, 1980). This
involved a consideration of materiality as a buttress for other related concepts, particularly relevance and reliability.30
In contrast, the ASB represented materiality, diagrammatically, as a supra threshold, positioned above other concepts.
Materiality constituted the nal test of what information should be included in nancial statements (ASB, 1999, paragraph
3.28). The concept was also portrayed as a cut-off point (IASB, 1989) which is a term associated with capital budgeting, risk
appraisal and capital investment decisions.
This distinct, scientic territory in discourses has emphasised the importance of an understanding of materiality, as a
standardised process, where a foundation for decision-making is neutral. The appeal of science in shaping materiality
discourses was probably engendered by auditors as a means of providing evidence to support judgments, rebut criticism and
deect possible problems with litigation.
445
4.5. Rules of thumb, magic numbers and legitimacy
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447
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449
450
451
452
453
454
455
456
457
458
459
Amidst shifting congurations of materiality, the most prevalent metaphor in the audit eld, amongst practitioners, has
been that of a rule of thumb (Fang and Jacobs, 2000; Brennan and Gray, 2005, p. 16; [51_TD$IF]Gray and Manson, 2008; Vorhies, 2005)
and a closely related image of magic numbers (Hicks, [80_TD$IF]1964, p. 170). Rules of thumb or magic numbers are pragmatic, assist
decision-making and generally position materiality within a range of [81_TD$IF]510% of net income.31
Truth games have been played between practitioners, guidance setters and regulatory bodies in debating the legitimacy
of magic numbers. Under certain conditions, quantitative thresholds have been promoted by expertises. At other times, their
validity has been qualied or refuted in the strongest terms.
Shifts in discourses about the legitimacy of magic numbers can be traced back to certain events and happenings.
Illustrating this point, in the US in the 1970[69_TD$IF]s, the fallout from a series of nancial scandals32 and the SECs Watergate Related
Enquiry in 1973/1974 (investigating secrecy and undisclosed payments) ruptured traditional beliefs about the value of a
xed and easy objective standard of materiality (Karmel, 1978). The SEC concluded that a sharper understanding of the
materiality concept was required. Financial matters alone should not be the sole criteria for the determination of materiality.
Views about the information needs of the average prudent investor also changed (Hewitt, 1977). The SEC re-constituted a
new, intelligent idea of materiality that extended to matters of social signicance and management integrity (Karmel, 1978).
30
There was a perceived trade off in SFAC 2 between reliability and relevance. If data were not reliable, whether or not this was a material error might
dependent on its relevance in a specic context, with all qualities subject to a materiality threshold.
31
More recently, a percentage of 5% of net income has been used in the US. IFAC has suggested that 5% of prot before tax is often used. Implicit therefore
within a rule of thumb is a simplistic assumption that uctuations of less than 5 percent of net income would not inuence investor decisions (Vorhies,
2005).
32
Scandals including for example the collapse of the Equity Funding Corporation in 1973. The failure of the organisations auditors to detect a signicant
fraud, perpetrated by staff over a decade, raised concerns at the time about tunnel vision in professional [6_TD$IF]judgement.
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463
Around the same time, the newly formed FASB, which had been in the process of publishing a discussion memorandum on
materiality, concluded that it was impractical to produce quantitative materiality guidelines that applied in all situations
(Thomas and Krogstad, 1979; Iselin and Iskandar, 2000). Policy makers positioned materiality as a qualitative concept
(Karmel, 1978) and these changes were signalled to practitioners in SFAC 2,
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465
Magnitude by itself, without regard to the nature of the item and the circumstances in which the judgment has to be
made, will not generally be a sufcient basis for a materiality judgment, (FASB, 1980, p. [82_TD$IF]7).
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467
468
469
470
471
472
473
474
475
In the UK, reporting problems of a different nature, rooted in concerns about inconsistencies within accounting rules,
encouraged the conguration of quantitative thresholds for materiality. To reduce divergence in judgments, the Accounting
Standards Committee (ASC) dened materiality as a percentage, in specic standards (Rutherford, 2007). In Statement of
Standard Accounting Practice (SSAP) 3 (ASC, 1972) a percentage threshold of 5% in the computation of earnings per share was
established. Thresholds were introduced in other SSAPs.33 However, xed rules, in seeking to reduce divergence in
judgement, created new problematics. Rules appeared to encourage the manipulation of thresholds in calculating the
materiality of an error (Blakemore and Pain, 1998), amidst growing concerns about a wave of creative accounting practices
amongst large listed companies in the 1980[83_TD$IF]s (Shah, 1996).
Views about the value of xed thresholds were disrupted. The Auditing Practices Board, shifted towards a dual
quantitative and qualitative understanding[84_TD$IF]:
476
477
478
an expression of the relative signicance or importance of a particular matter in the context of nancial statements as
a whole. . . [85_TD$IF]Materiality is not capable of general mathematic denition as it has both quantitative and qualitative
aspects, (APB, 1995, paragraph 3).
479
480
In the US, concerns about creative accounting and the use of benchmarks to manipulate materiality judgements, led to the
SEC to condemn rules of thumb in the strongest terms[86_TD$IF]:
481
482
483
484
Certain registrants, over time, have developed quantitative thresholds as rules of thumb to assist in the preparation
of their nancial statements. . . [87_TD$IF]The staff reminds registrants and the auditors[8_TD$IF]. . . that exclusive reliance on this or any
percentage or numerical threshold has no basis in the accounting literature or the law, (Staff Accounting Bulletin
(SAB) 99).
485
486
487
488
489
490
491
492
Commissioner Levitt (1998), the Chairman of the SEC, rejected rules of thumb as a blatant numbers game where
practitioners sheepishly argued, when challenged, that the bottom line effect of identied errors was immaterial.
Interestingly, a new concept of performance materiality has been introduced in the recently claries ISAs. ISA 320
recognises that some account balances or disclosures might be affected by misstatements that are less than the materiality
level for the nancial statements as a whole. This is where performance materiality should be applied, with the intention of
reducing the probability that the total of uncorrected misstatements exceeds nancial statement materiality. ISA 320 refers
to the use of benchmarks in calculating materiality which perhaps nally recognises that metrics are widely used in practice
(Collins and Laudato, 2010). However, the guidance is vague[89_TD$IF],
493
494
495
496
497
The concept of performance materiality does seem to have thrown confusion amongst professional auditors. . . [90_TD$IF]there
is no guidance on how auditors should calculate it. . . [91_TD$IF]As the concept becomes more established, standard setters,
software providers and Continuing Professional Development (CPD) providers could well come up with calculations
on how to arrive at performance materiality. I suppose back in the days when the concept of materiality was rst
introduced, auditors then had the same issues we face now with performance materiality, (Accountingweb, 2010).
498
499
500
This observation signals a preference amongst practitioners for an understanding of materiality based on benchmarks
and rules of thumb. Such approaches are straightforward, pragmatic and are of practical assistance to the practitioner in
reaching a [6_TD$IF]judgement about an items importance.
501
4.6. Materiality [54_TD$IF] a technique linked to the management of audit risk
502
503
504
505
506
507
Another historical development has constructed materiality as a risk management technique that manages uncertainty
and reduces audit risk. Following a series of economic crises and scandals in the mid 1970[92_TD$IF]s and 1980s (Sikka and Willmott,
1995), a risk-based approach to audit emerged amongst rms in the 1990[93_TD$IF]s (Power, 2004). Statistical sampling dwindled in
popularity and analytics began to drive audit planning and practices. Materiality was reinvented in professional guidance as
a category of knowledge that complemented a risk management approach. A theoretical relationship was established
between materiality and audit risk, with the objective of reducing audit risk to an acceptable level[94_TD$IF]:
508
509
There is an inverse relationship between materiality and the level of audit risk, that is, the higher the materiality level,
the lower the audit risk and vice versa, (IFAC, 2008, paragraph 10).
33
As well as the UK, the Australian Accounting Standards Board (AASB) also issued a quantitative denition. Accounting Standard 1031 suggested that 10%
of a base amount was material while 5% or less was not (AASB, 1995).
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510
511
512
513
514
515
516
517
518
519
520
Textbooks depicted materiality as a subset of risk (Millichamp and Taylor, 2008, p. 151). This relationship was represented
as a Venn-diagram, placing materiality in a logical relationship with evidence and audit risk (Cosserat, 2000, p. 215).
Materiality guided the entire audit process, from planning through to the audit opinion. A notion of planning materiality
was introduced (APB, 1995, paragraph; Big Five Audit Materiality Task Force, 1998) to assign materiality levels to each
component in the nancial statements (Cosserat, 2000; Porter et al., 2008). The extent of audit evidence gathered was
theoretically linked to identiable audit risks and materiality thresholds. Finally, at the evaluation stage, the materiality of
actual and potential errors would be evaluated, referred to as evaluation materiality (Gray and Manson, 2008, p. 411).
Materiality judgments thus responded systematically and logically to audit risk assessments. The focus of the audit was
directed towards systems as the auditable object rather than the reality of underlying transactions (Power, 1997a,b). At the
same time, the overall responsibility for detecting material errors and the governance of fraud risk as a future possibility was
increasingly been emphasised as a management responsibility (Power, [95_TD$IF]2012).
521
522
523
524
525
526
527
528
4.6.1. Materiality and risk management [36_TD$IF] post Enron

The extensive regulatory fall out in the US following the collapse of Enron triggered a reconstruction of the materiality
construct. The recommendations that followed strengthened the links between materiality and risk management as a
category of knowledge. Misrepresentations in Enrons nancial statements were aggressively intended to overstate prot
and the companys auditors, Arthur Andersen, and the wider profession, were criticised for adopting a mechanical focus of
materiality34 (Shaub, 2005) instead of challenging management (Cullinan, 2004).
In response to internal control failures at Enron, the Sarbanes-Oxley Act 2002 assigned a new importance to materiality
that placed a greater emphasis on the governance responsibilities of management to detect material errors[89_TD$IF],
529
530
If you think you understand materiality and its uses, think again. The Sarbanes-Oxley Act of 2002 has put demands on
management to detect and prevent material control weaknesses in a timely manner, (Vorhies, 2005).35
531
532
533
534
535
536
A re-construction of materiality linked the concept with four categories of misrepresentation: [96_TD$IF](1) misstatements or
errors; [97_TD$IF](2) internal control deciencies; [98_TD$IF](3) accounting estimates[9_TD$IF]; and (4) frauds. The emphasis of the Act has been on the
responsibility of management to implement a control risk reporting process to ensure the timely identication of material
issues, where the practitioners role is one of assistance (Vorhies, 2005). Cullinan (2004) has suggested that in responding to
the symptoms of internal control problems at Enron, with a focus on management responsibilities, the Act has missed an
opportunity to reect more widely about rationales underpinning materiality in nancial audit[10_TD$IF].
537
4.7. Materiality a mysterious shield and shooting [10_TD$IF]target
538
539
540
541
542
543
544
545
546
547
548
Another metaphor combination, drawing on abstract, ctional and mythical objects, has positioned materiality as a
mysterious, protective shield but also as a shooting target. The foundation of this metaphorical discourse is rooted in vague
denitions of materiality, its fuzzy workings in the eld, debate about uncertainty in reporting and contested meanings of
nancial audit (Sikka et al., 1998).
Bernstein (1967, p. [102_TD$IF]90) famously characterised materiality as a black box where the workings of professional [6_TD$IF]judgement
are hidden. Materiality has been described as a mystery concept and part of the art of accounting, (Rose et al., 1970) and
like beauty, as being in the eye of the beholder, (Hicks, 1964, p. [103_TD$IF]159). Brennan and Gray (2005) referred to the concept as
accountings best kept secret.
The secrecy about materiality (Ling Lee, 2004) is strategically advantageous and operates, in a tacit sense, as a mysterious
shield. A denition lacking precision, where the criteria that underpin auditor materiality decisions are not transparent or
disclosed, allows exibility and shields [6_TD$IF]judgement from public scrutiny[104_TD$IF]:
549
550
The question of what is material has puzzled a great many people over a great many years, yet nobody is prepared to
dene it so that it does not ultimately rest on someones judgment, (Blough, 1949, p. [105_TD$IF]13).
551
552
553
554
555
However, this shield also manifests as a knowledge object that auditors are able to manipulate or hide behind to give
authority to unprofessional practices. [106_TD$IF]Grifn (1959, p. 298) warned about the dangers of standing behind the aegis of
materiality, for it will undermine the signicance of precision as a mental discipline and instead encourage inexactitude and
approximation. The aegis, in Greek mythology, is a mythical shield and form of protection from a powerful, knowledgeable
higher authority. Latitude in [6_TD$IF]judgement afforded by a vague denition of materiality has been described as hazardous,
556
557
558
Materiality is used to justify practices and procedures which we recognize as wrong, or at least as
questionable. . .there exists a real danger of opening a Pandoras box in the accounting world because materiality
is not well dened and its applications not dened at all, (Hylton, 1961, p. [107_TD$IF]63).
34
The impact of the fraud on net assets was a reduction in shareholders funds from $11.5bn to $10.3bn. Commentators have suggested that this
adjustment was bordering on immaterial, measured in quantitative terms. However, in qualitative terms, there were multiple oversights and points of
break down in decision-making (Cullinan, 2004; Shaub, 2005; Chabrak and Daidj, 2007).
35
With four types of key control exceptions, including misstatements or errors, internal control deciencies, accounting estimates and fraud, where
materiality is applied by management to evaluate each one.
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559
560
561
562
563
564
565
566
567
568
569
570
571
572
573
574
575
576
577
578
579
Negative discourses concerned about secrecy have constructed materiality as a type of target for critics to shoot at. The
Wall Street Journal described materiality as an Alice in Wonderland [6_TD$IF]judgement, with accountants scurrying around like
white rabbits, never quite getting to grips with the subject (Holmes, 1972, p. [108_TD$IF]44). Thirty years later, the absence of a clear
denition was still being lamented, Companies are required to tell the public material information, but whats frustrating
about materiality is that there is no clear denition, says Paul R. Brown, chairman of the accounting department, New York
Universitys Stern School of Business. Policy makers have literally avoided dening materiality [43_TD$IF](Wall Street Journal, 1999).
Vague, qualitative understandings of materiality have been described as a murky world [109_TD$IF](Miller, 20002001). In the
recent Senate Banking Securities Subcommittee investigation into the Accounting and Auditing Profession, following the
Financial Crisis, in 2011, it was reported that accountants and auditors need to quit hiding behind materiality, (Valukas,
2011).
Materiality as a shooting target is prevalent again in the media in the US. US investors are concerned that vague disclosure
guidelines36 encourage less information to be divulged instead of more (Henning, 2011). At the same time, materiality is
increasingly being associated, by investors, with softer issues that inuence share prices. A lack of disclosure for example
about the deteriorating health of a CEO may now be considered grounds for litigation (Davidoff, 2011).37 There is a growing
public perception that practitioners too easily defend their decisions in court by raising reasonable doubt about the
materiality of an item relative to the total mix of information available to investors. The implication is that that materiality
judgments increasingly lie, like beauty, in the eye of the jury, (Henning, 2011).
Calls for a review of what materiality really means, greater transparency and detail still abound (Chewning and Higgs,
2002; Ling Lee, 2004; Brennan and Gray, 2005; Sherman, 2010). Concerns about vagueness and cries for certainty about
materiality however are ultimately linked to wider debates about uncertainty in nancial reporting and audit quality. As
such, these calls are rooted in the impossibility of eliminating the expectations gap (Sikka et al., 1998).
580
5. Discussion
581
582
583
584
585
586
587
588
589
590
591
592
593
594
595
596
597
Our understanding of accounting materiality today is built upon assemblages of historical conditions, events and ongoing
battles over its meaning. Materiality is not a reporting concept that has developed in a continuous, linear manner. On the
contrary, metaphorical discourses indicate that it has been constituted as multiple categories of knowledge. The inherent,
malleability of the concept has facilitated its re-alignment and re-invention to meet reporting priorities and challenges. Its
shifting congurations have been episodic, mirroring and strengthening changes in the craft of audit.
Through a Foucauldian lens, materiality operates at the crux of truth and power games about making visible, managing or
hiding errors or ambiguities that arise in the translation and materialisation of information into accounting inscriptions
(Robson, 1992). These inscriptions manifest as nancial statements that need to be t for purpose and show a true and fair
view. Materiality determines the importance of a matter in processes of translation. However, a genealogical analysis
suggests that under different conditions of possibility, it has been constituted as multiple categories of knowledge as: a
moral responsibility to protect the material capital of investors; an organising, de-cluttering concept but with a focus on the
material value of the audit; a technology and solid foundation for audit to reassure the public about quality in reporting; a
scientic technique to standardise decisions and deter litigation; a risk management tool with a focus on systems and
governance; a pragmatic rule of thumb to assist decision making; and a shield to allow exibility in decisions which also
manifests as a shooting target for critics.
Implicit within all these understandings, is the metaphor of materiality as a performative activity that determines what is
included or lost in translating data into inscriptions,
598
599
600
601
The assumption that the item in question is in some sense material is implicit in every decision to render some event
into a nancial datum, to classify a transaction, to dispute some controversial accounting treatment. Thus, for every
decision made in accounting there is a prior, often subconscious decision that the item in question is material.
(Frishkoff, 1970, p. [78_TD$IF]116).
602
603
Materiality resembles an enmeshing of material and social processes, or a type of performance involving complex
interactions within actor networks,
604
605
606
607
other notions of materiality are relevant in analytical review, in evaluation of internal control strengths and
weaknesses in compliance testing, in selection and application of audit procedures in personnel assignments and even
to time budget allocations to various aspects of the audit and in judging the sufciency of evidence gathered. The
nuances of materiality judgements extend well beyond professional guidance, (Thomas and Krogstad, 1979, p. 77).
608
609
Interpreting materiality as a performance amongst actors and a performative activity potentially opens up new avenues
for research. Decision-making could be explored as the enactment of metaphors and truth games amongst groups of actors
36
American securities laws do not require, as they may do in other jurisdictions, that all material information be disclosed on a continuous basis. Instead,
companies must periodically le reports with the SEC disclosing all material information. Certain categories of such information, like director resignations,
are required to be reported within two business days. But most information is allowed to be reported quarterly or yearly. New York Times Davidoff [10_TD$IF](2011).
37
The medical issues of Apples chief executive, Steve Jobs, led to calls for protocols about when issues related to an executives health should be revealed
to shareholders (Henning, 2011).
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610
611
612
613
614
615
616
617
618
619
620
621
622
and shifting congurations of materiality. A material item becomes visible only in the context of the socio-material
arrangements in which it is enacted (Latour, [1_TD$IF]1987; Law and Mol, 1995) where boundaries between the material and the
immaterial, in an audit engagement, are constructed through micro dynamics.
For practitioners, the value of this analysis may lie in unravelling a familiar concept, to reveal its shifting congurations
and multiple histories. There are two key observations. First, new metaphors open up possibilities for new actions and
practices (Hacking, 2004). Second, metaphorical discourses and expertises may conict, triggering epistemological battles in
the way the materiality of an item is evaluated (Samiolo, 2012). Where there is ambiguity, an item cannot be both material
and not material at the same time. Different understandings have to be resolved especially in the context of an audit, where
there is a process of drawing a line in decisions (Olson, 1968)38 which may need to be justiable in court. The mode in which
ambiguity is resolved may involve the ranking of certain expertises over others or a negotiation where a new understanding
is formulated or through suppression (Latour, 1987; Mol, 2002). Certain expertises may exist outside the socio/material
setting in which a decision is reached and may be overlooked (Foucault, 1981). Future research into the resolution of
ambiguity may be relevant for practitioners.
623
6. Concluding [12_TD$IF]remarks
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631
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641
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649
This study has attempted to explore genealogical conditions that lie beneath the emergence of materiality discourses and
its past roles. An analysis of imagery applied reveals that the meaning of the concept has been inuenced by different, at
times conicting, styles of reasoning. Expertises have constituted materiality as a multiplicity of knowledge objects: as a
moral responsibility; a solution to over auditing; a solid foundation for audit; a scientic tool; a professional lens; a rule of
thumb; a risk management process; and a mysterious lens. These knowledge objects cannot be understood in isolation from
expertises that have responded to challenges, objectives, priorities, threats and constraints within the work of accountants.
Its meaning has not developed continuously over time but has been episodic, contingent on changes in the craft of audit,
perceptions of investor needs, economic conditions and nancial scandals.
Many different powers have played a part in the materialisation of this construct, including legal apparatuses and the
courts, professional accounting and regulatory bodies, professional technologies (such as statistical sampling, and risk
management approaches) and practitioners through the way in which they construct and organise themselves and their
practices.
The variety of gures of speech apparent: as a child of law, a safety test, an index of time and trouble, part of the wisdom of
life, a cornerstone and doctrine, a tolerable error, a screen or threshold; a subset of risk; or a mythical shield, demonstrate the
malleability of the concept and its multiple roles. Its exibility has enabled its alignment and reinvention to meet socio/legal
and professional objectives and priorities, either externally imposed or strategic. Vestiges of legal power and shifting
concepts and technologies in developing systems of [6_TD$IF]professionalisation are all reected in its construction. Underpinning
these constitutings, the concept is legalistic and rooted in a capitalist ethos, with a focus both on protecting the material
capital of the mythical man and the material value of the audit, rather than the interests of a wider audience of
stakeholders[13_TD$IF].39
Viewed through a Foucauldian lens, materiality operates at the site of truth games about making visible, controlling,
taming, managing or hiding errors and subjectivities in the translation of accounting inscriptions. Accounting materiality is
one of the most iconic and important concepts associated with audit [6_TD$IF]judgement. The concept is so familiar that its rich
historicity and conditions that have shaped it as different types of knowledge object may easily be overlooked. A fresh
genealogical approach, although not a panacea for resolving the materiality problematic, may encourage reexivity about its
multiplicity and constitutings, viewed as a performative activity.
650
Q4 Uncited references
APB [15_TD$IF](2008), Chewning et al. (1998), Cooper and Robson (1996), Foucault (2002), Power (2003), and SEC (2013, 1999).
651
652
Acknowledgements
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The author is very grateful for the helpful, constructive comments provided on earlier drafts of the paper by the two
anonymous reviewers and the editors of the journal. These suggestions played an important part in signicantly improving
the paper. The author also wishes to thank participants at the Critical Perspectives on Accounting Conference in Clearwater,
Florida, July 2011, the Accounting History Review Conference at Cardiff Business School, September 2011 and the EAA
Annual Congress in Ljubljana, 2012. Also acknowledged are helpful comments, from the outset, by members of the
Interdisciplinary Perspectives on Accounting Research Group at Cardiff Business School, with particular thanks to Mahmoud
Ezzamel, Keith Robson, Nina Sharma and Stephen Walker.
38
Executive Vice president of the AICPA.

Although the idea of moving towards a more stakeholder orientated understanding of materiality in nancial reporting was briey considered in the UK,
during the Company Law Review in the early 2000s, the committee reverted to a traditional shareholder focus (Company Law [14_TD$IF]Steering Group, 2001).
39
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