This website uses cookies to ensure you have the best experience. Learn more

The Audit Expectations Gap Essay

3027 words - 12 pages

Auditing has developed from what, in the twelfth century, was primarily a check of the accounting for stocks and revenues by authorised officers of the Exchequer of England, into a sophisticated professional assurance service performed by independent accountants for the interests of their clients and other users of financial information . But what motivates people to enlist the services of an auditor? In explaining why the demand for the auditor is so varied, the academic Wallace identified a three tier hypotheses of Stewardship, Information and Insurance. Thus viewing the audit in the modern day business arena, as offering protection of integrity to the Director, a conduit to information for users of financial statements and a degree of insurance to shareholders and creditors. Professor David Tweedie, delivering a paper at University College, felt that the needs of an audit to the user, encompassed an even greater range of requirements:"The public appear to require1) A burglar alarm system - (protection against fraud)....2) A radar station - (early warning of future insolvency)....3) A safety net - (general re-assurance of financial well-being)....4) An independent auditor - (safeguards for auditor independence)....5) Coherent communications - (understanding of audit reports)....He went on to say:"Given these concerns, it is clear that the basic tenets of an audit are being mis-understood."It is clear that users of the audit depend on the integrity and professionalism of auditors; but unexpected company collapses in recent years and scandals surrounding companies such as Enron, and more recently Fannie Mae, have resulted in public confidence in the profession being at its lowest ebb historically. The credibility of external auditors is increasingly being called into question, as evidenced by widespread press criticism and litigation against auditors. Research undertaken to identify the basis of this criticism shows that there is a gap between society's knowledge of company law and auditing standards, and the fundamental role of the auditor. The divergence between the two has become known as the 'Audit Expectations Gap'.Although the term was introduced by Liggio (1974) and further substantiated by the Cohen Commission in 1978, the concept has been around for well over a hundred years. (Royal British Bank (1859), Kingston Cotton Mill (1896)). In Leeds Estates 1887, Turner LJ implied that fraud-discovery might be seen as a responsibility of the auditor, a notion that has been nurtured, and often distorted, through to the present day .Dr David Godsell defines the expectations gap as the divergence in expectations between auditors and the users of the audit function, in respect of the objectives of the independent audit. Research undertaken by Porter suggests that users of the audit function can be broken down into two elements (see appendices) :A 'reasonableness gap' - this consists of the gap between what society expects of auditors and what...

Find Another Essay On The Audit Expectations Gap

The Key Value of Auditing Essay

678 words - 3 pages first time going concern modification and the withdrawal of the going concern modification. Thus consistency in the audit behavior is very important from the business perspective. There are times when inconsistent audit behavior may create a wide gap in the expected presentation of the financial statements by the various users and it creates a wrong impression that the consistency is maintained in the audit behavior by the auditors when it is

wk2assgnFbozant Essay

853 words - 4 pages include discussion of business risks. The requirement to include risk factor disclosures, of course, means that the audit committee must be knowledgeable about risks to ensure the disclosures are complete. By definition, SEC reports that do not include expected business risks will not be non-compliant financial reports. So, the expectations have grown from just needing to oversee the financial reporting process to potentially reviewing all

Components of ITAF

466 words - 2 pages COMPONENTS OF ITAFInformation Systems Audit Control Association (ISACA) has published a set of guidance known as Information Technology Assurance Framework (ITAF). ITAF is intended to guide and direct the IT auditor, and the discharge of his or her professional duties. It is not meant to replace other audit guidance and framework, but rather to be used in conjunction in order to provide context specific guidance to the IT auditor. ITAF is

The Purpose of an Audit Report

1315 words - 5 pages expression of opinion on financial statements (Millichamp and Taylor, 2012). However whether the information that auditors faithfully present or the users can totally rely on might still be the big question. Nonetheless under rules and regulations set by accounting boards, audit reports show the external opinion on true and fair view of the company’s financial statements and reduce the “Audit Expectation Gap” (AEG). Different users have

Code of Ethics

2212 words - 9 pages customer has in our ability to execute. We can see examples of company’s who did not conduct business with responsibility and integrity, by looking at Enron and Tyco under Dennis Kozlowski. Kozlowski showed no remorse for what he had done and acted as if he had done nothing wrong after being found guilty (Ferrel, Fraedrich, & Ferrel, 2011). On the other side of the spectrum Gap is a company that has acted with Responsibility and Integrity. After

Fraud

1910 words - 8 pages order to have a reasonable expectation of detecting material misstatements in the financial statements arising from fraud.The two terms "reasonable expectation" and "material misstatements" are central to the accountants' responsibilities in relation to fraud and play a large part in the gap between users' expectations and the current position in relation to statutory audit. Fraudsters usually take steps to cover their tracks so that a "reasonable

Legal Regulation of Corporate Governance in the Role of Auditors

2552 words - 10 pages take into account. Moreover, how the company’s policies, and management’s monitoring activities function through the whole process, and whether these procedures serve to deter and detect financial statement fraud’. The audit expectation gap highlights a high expectation for auditors to take a far more significant role in detecting and deterring fraud and illegal activity. The aim is for the auditor to ‘obtain reasonable, but not absolute

Benefits of a Program Audit

721 words - 3 pages indirect services. Multiple elements and strategies fall under the delivery system component as counselors strive to meet student needs (ASCA, 2012). Management system is the third component of the program audit. The management system component consists of school counselor/administrator agreements, advisory council, use of data and student monitoring, use of data and closing-the-gap, action plans, and use of time/calendar (ASCA, 2005). In

Refocusing The Gap

1720 words - 7 pages Introduction Gap Inc. is a leading international specialty retailer, which offers clothing, personal care products, and accessories for any and everyone. Currently Gap Inc. operates in 4100+ stores worldwide. Customers can shop at Gap stores in six different countries. The purpose of this report is to discuss some strategies as to how the declining chain clothing store Gap. Can rebound and re-attain a position similar to that of the 90's.History

The Collapse Of Enron

1092 words - 5 pages their major clients. The fact is that auditors are seen in the public's eyes as being held accountable in cases such as this where the accounts had been signed off.Though in the case of Anderson, there could be a degree of downplaying on their role due to the claim by many auditors that if corporate fraud is involved the auditor's responsibility is diminished. This is one of the best instances were the audit expectation and performance gap comes into

Post completion audit

1478 words - 6 pages project performing to initial expectations?* How justified were these expectations?* What lessons can we draw to assist future appraisals?Source: [5]According to Neale, the final phase of the process is the post-completion audit of the project, and it involves:* examination of the project's progress in its implementation phase; and* in-depth analysis of the realised costs and benefits to date and the likely future prospects of a project, as

Similar Essays

Mind The Gap: Will The Auditing Expectations Gap Ever Disappear?

2331 words - 9 pages financial reporting and auditing services delivered by the Accounting Profession (Loft 2000).Then in 1997 Chris Humphrey refined the definition and summarised the expectations gap as a representation of the feeling that auditors are performing in a manner at variance with the beliefs and desires of those for whose benefit the audit is being carried out (Loft 2000).1.2 The Evolution of the Expectations GapThe idea of an expectations gap can first be seen

An Analysis On The Service Gap Between Customer’s Expectations And Experience Received From Wan Hai Lines (Maritime Shipping Company) In Penang

1116 words - 5 pages . Oliver (1997) described service quality as the result from customer compared between their expectations about the service they will use and their experiences about the service render by the service company. 1.2 Problem Statement Service quality is the degree to which the excellent performance of service companies matches customer expectations and experiences (Anjor and Kumar, 2013). Services have four major characteristics such as intangible

Key Audit Matters (Kam) Essay

705 words - 3 pages might unreasonably expect auditors to offer investment advice in KAM. To remedy this, it is crucial to educate stakeholders on what an audit provides, to conduct studies on changes in corporate governance and to involve stakeholders in determining the audit scope (Adams & Evans, 2004). Reference: Adams, C., & Evans, R. (2004). Accountability, completeness, credibility and the audit expectations gap

Audit Expectation Gap Essay

2923 words - 12 pages expectation gap problems with the misconception of the nature, reason and capacities of an audit function. The lack of knowledge of the public is liable to cause irrational expectations being imposed on the duties of the auditors. The unreasonable expectations of the public are exposed in the following comment of the AICPA secretary in 1939 in the aftermath of the McKesson Robbins scandal: We find that the public believed that the certified public