Audit expectations gap and causes - Lecture 4

Question 1

Sikka’s definition (1998)

Answer 1

The difference between what the public expects from an audit and what the profession prefers the audit objectives to be

Question 2

McEnroe and Martens definition (2001)

Answer 2

Difference between what the public and other financial statement users perceive auditor’s responsibilities to be and what auditors believe their responsibilities entail

Question 3

Porter’s definition (1993)

Answer 3

The gap between society’s expectations of auditors and auditors perceived performance

Question 4

What causes the expectations gap?

Answer 4

.Society having unreasonable expectations of auditors
.Society having reasonable expectations of auditors but accounting standards are deficient
.Society perceiving auditors work to be deficient
Auditor’s work are deficient

Question 5

What attempts have been made to reduce the gap?

Answer 5

.Change the standard audit report
.Develop standards
.Monitor auditors’ performance

Question 6

How would developing standards reduce the gap?

Answer 6

They need to encompass responsibilities reasonably expected of auditors - This is to align auditor’s performance with society’s expectations

Question 7

How did the audit profession attempt to reduce the gap?

Answer 7

.Monitor auditor’s performance through legislation
.In the UK monitoring systems in place through governmental and professional systems

Question 8

Despite efforts, the gap still persists, what are the 6 reasons for this?

Answer 8

1. Structure and component of the gap
2. Clash of meanings or semiotics
3. Audit principles
4. Profession’s response
5. Auditors responsibilities
6. Public Vs Self interest

Question 9

What are the three gap components?

Answer 9

1. Unreasonable expectations (Reasonableness gap)
2. Reasonable expectations (Deficient standards gap)
3. Dissatisfaction with auditors performance (Deficient performance gap)

Question 10

Audit principles provide protection and raise public expectations, which concepts show this?

Answer 10

.Accountability
.True and Fair view
.Auditor independence
.Audit liability

Question 11

The gap still persists even with the professions response because….

Answer 11

The profession fails to evolve with the changing external audit environment

Question 12

How does the gap persist because of auditor’s responsibilities?

Answer 12

Auditors failing to fulfil expectations aroused and invoked have adverse effects at both an individual and societal level