Český finanční a účetní časopis 2025(3):4-32 | DOI: 10.18267/j.cfuc.613

A Methodological Proposal for Studying Investors’ Materiality Perceptions: Evidence from Share Purchase Agreements

Ota Novotný, Václav Adam
Tilburg University, Vysoká škola ekonomická v Praze

Audit materiality is often initially assessed using 'rules of thumb' derived from historical professional experience and industry standards. Given its role in ensuring that auditors provide meaningful service to stakeholders, understanding the perceptions of financial statement users regarding materiality is critical. Building on Vance's (2022) meta-analysis of five decades of empirical research, this study proposes an innovative research design that proxies investors´ materiality thresholds through indemnity basket clauses in Share Purchase Agreements (SPAs). Using a manually compiled dataset of 62 M&A transactions involving Czech target companies completed between 2014 and 2024, hypothetical basket bands ranging from 0.5 % to 1.5 % of deal value—constructed from ranges reported in prior practical legal studies—were recalculated as percentages of Earnings After Tax (EAT) and compared to benchmark materiality levels reported by auditors and investors. A 0.5 % basket corresponds to mean thresholds of 9.2 % of EAT, significantly higher than the 7.85 % mean materiality identified for auditors in Vance's (2022) meta-analysis—suggesting that auditors´ lower materiality thresholds may correspond to greater precision and a finer level of analytical detail than those applied by investors. Two-sample t-tests confirm partial alignment between investor-based benchmarks and empirical results at the 0.5 % basket level, indicating that the proposed research design provides a feasible basis for future empirical studies if detailed data from individual SPAs was made available, while also bridging law, accounting, and finance research by demonstrating how contractual thresholds can serve as observable indicators of investor materiality judgements. The study also highlights the encountered limited transparency of transactional and financial disclosures in the Czech Republic.

Keywords: Audit Materiality, Share Purchase Agreements (SPA), Basket Clause

Received: May 27, 2025; Revised: May 27, 2025; Accepted: September 30, 2025; Published: December 28, 2025  Show citation

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Novotný, O., & Adam, V. (2025). A Methodological Proposal for Studying Investors’ Materiality Perceptions: Evidence from Share Purchase Agreements. Czech Financial and Accounting Journal, 2025(3), 4-32. doi: 10.18267/j.cfuc.613
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