Week 1 - Expectation Gap

Question 1

Define the expectation gap

Answer 1

The difference between what users of an audit report EXPECT from an audit and the ‘reasonable assurance’ actually provided

Question 2

How does the expectation gap affect evidence gathering?

Answer 2

Absolute - auditors test all balances and transactions
Reasonable - evidence is gathered through sampling, focussing on risk areas

Question 3

How does the expectation gap affect errors?

Answer 3

Absolute - auditors should detect all fraud and errors
Reasonable - an audit is designed to detect material misstatements arising from fraud or error

Question 4

How does the expectation gap affect companies going bust?

Answer 4

Absolute - a ‘clean’ audit report means a company won’t go bust - if it does the auditors failed in their duty
Reasonable - Auditors consider whether there is ‘material uncertainty’ over going concern at the date of signing