Audit Expectation Gap

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AUDIT EXPECTATIONS GAP

Definition

i)Liggio (1974a) defines it as the difference between the levels of expected performance as envisioned by the independent accountant and by the user of financial statements. The Cohen Commission (1978) on auditors’ responsibility extended this definition by considering whether a gap may exist between what the public expects or needs and what auditors can and should reasonably expect to accomplish.

ii)According to Guy and Sullivan (1988), there is a difference between what the public and financial statement users believe accountants and auditors are responsible for and what the accountants and auditors themselves believe they are responsible for.

iii)Godsell (1992) described the expectation gap as “which is said to exist, when auditors and the public hold different beliefs about the auditors’ duties and responsibilities and the messages conveyed by audit reports.”

iv) Jennings et al. (1993), in their study on the use of audit decision aids to improve auditor adherence to a ‘standard’, are of the opinion that the audit expectations gap is the difference between what the public expects from the auditing profession and what the profession actually provides. Monroe and Woodliff (1993) defined audit expectation gap as “the difference in beliefs between auditors and public about the duties and responsibilities assumed by auditors and the messages conveyed by audit reports.”

v)According to AICPA (1993), the ‘audit expectation gap’ refers to the difference between what the public and financial statement users believe the responsibilities of auditors to be; and what auditors believe their responsibilities are.

vi)Epstein and Geiger (1994) defined audit expectation gap as: “differences in perceptions especially regarding assurances provided between users, preparers and auditors”.

vii)The ASCPA and ICAA (1994) observe that the term ‘expectation gap’ should be used to describe “…the difference between expectations of the users of financial reports and the perceived quality of reporting and auditing services delivered by the accounting profession.”

Components of Expectations Gap

Three components of the expectation gap can be identified as follows:

1)Reasonableness gap

A gap between what the society expect auditors to achieve and what they can reasonably be expected to accomplish. Such a gap exists because of misunderstanding of users, users’ over expectations, uneducated users, miscommunication of users, and miss-interpretation of users and unawareness of users from the audit practice limitations.

2) Deficient standards gap

A gap between the duties, which can reasonably be expected of auditors, and auditors existing duties as defined by law and professional promulgations. Kinney (1993) states that one of the major causes of the profession’s expectation gap is the difference between what the standards of the profession provide and what users might desire. In addition, such a gap existed because of lack of sufficient standards to covering all of audit practices or the existence of the insufficient standards for audit responsibilities, detection of fraud and illegal acts. In short, the deficient standards gap is only because of insufficient or poor standards to audit functions.

3)Deficient performance gap

A gap between the expected standard of performance of auditor’s existing duties, and performance as expected and perceived by society (Porter et al., 2003). Such a gap also confirmed by scholars and researchers in a lot of countries. The main reasons of such a gap may be classified as follows: Non-audit services practicing by auditors, self-interesting auditors and economical relationship with clients, unqualified auditors, and dependent auditors.

Causes of Expectations Gap

• Overreliance on client representations

• Lack of awareness or recognition of an observable condition indicating fraud...
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