The Existence of Audit Expectation Gap:
Bangladesh Perspective - Perceptions of Naïve Investors, Students and Professionals Regarding the Audit and Role of Knowledge Affecting the Gap.
The study investigates the existence of audit expectation gap in relation to society’s unreasonable expectations out of auditing in Bangladesh. This also identified the effects of auditing knowledge on the gap. Among all the classes of our society the accounting graduates are expected to have more knowledge on auditing, who represented 60% proxy of the users. For the purpose of the study, the four groups who are chosen as sample users are: (1) General investors (naive) (2) Students not completing any audit course (3) Students completing two (2) courses (Audits I&II) (IV) Articled students either level I or level II. The questionnaire comprised of two parts, were sent regarding three aspects: audit liability, audit reliability and materiality of audit opinion. It is found that the respondent who are closer to auditing concepts expect reasonably out of the auditors than the others. The knowledge in the respective fields affected the expectations both positively and negatively.
Keywords: Expectation gap; audit liability; audit reliability; materiality of audit opinion; audit knowledge.
“Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria: Auditing should be done by a competent and independent third person” (Arens and Loebbecke 1988). The auditor in an audit opinion, certifies that the financial statements represent a true and fair view and are prepared in accordance with GAAP (Generally Accepted Accounting Principle) followed by the industry. The collapse of Lehman Brothers, an American bank with $691 billion in 15th September of 2008 along with subsequent bankruptcy of Washington Mutual Bank [$327.9 billion] in September 26, 2008; General Motor [$91 billion] and CIT Group [$71 billion] in 2009 put the auditing profession and auditing itself into a severe challenge. Auditors’ prudent person concept or underperformance of the auditors and society’s over expectation individually or simultaneously result into audit expectation gap.
Objectives of the Study Regarding Perpetual Expectation Gap: Expectation Gap was termed by Liggio in 1974 for the first time. Since then it is the significant differences regarding perceived materiality level between auditors and users of financial statements. The AICPA acknowledged the fact that -‘after considerable study of available evidence’ that ‘such a gap does exist’ (Cohen commission Report, AICPA 1978). From the subsequent definition provided by Arrington et al (1983), Monroe and Woodcliff 1993, the two major component was identified by Porter (1983 and 1993): (i)’reasonableness gap’ and (ii)’performance gap’. Reasonableness gap is the difference between what the society does expect the auditors to achieve and what they can reasonably expect to accomplish. Thus point of unreasonable expectation comes. Performance gap is the difference between the responsibilities society reasonably expects out of audit and auditors’ performance. These gap widens as the role of audit increases. Now this study proceeds to answer the questions- who are the users feeling their expectations are not met and are those expectations reasonable in Bangladesh perspective? The study further tended to discover the impact of audit knowledge in reducing or increasing the gap. It is evident that more knowledgeable the users the closer gap. Reasonably naïve investors are expected to seek more from audit report.
From the birth of expectation gap, several studies have been conducted by the concerned specialists around the world. The findings were also centered to perpetual expectation gap however this was wider in some cases. In 1977, Baron et al...
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