Contents
Introduction:...............................................................................................................2
Nature of Expectations Gap:......................................................................................2
Issues in the expectation gap:....................................................................................5
Auditor independence:............................................................................................5
Auditors role in detecting fraud:..............................................................................6
Expectations of public related to the issues:...............................................................7
Reducing the gap in expectations:.............................................................................8
Conclusion:.............................................................................................................. 10
References............................................................................................................... 12
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Introduction:
by the fact that, may be the need of the users are beyond auditors roles and
responsibilities and recently many misconceptions has grown over the assurance
given by them. To improve the image and performance of the auditing profession
there is a vital role of the expectations of the society and to align them with the roles,
duties and the performance of the auditor. In this essay we will discuss about the
differences that are perceived by the users of the financial statement and other
public users whether auditors are clearly meeting the users requirements by
following the responsibilities which they are meant to fulfil or not. This essay also
focusses on the expectations gaps and the assurance being provided. This essay
will provide the general nature of expectation gap, its issues with the societys
expectation of auditors and their performance. Finally, we will conclude with some
Auditing plays a vital role in serving the public according to their interest to maintain
trust and confidence to the reporting methods. It also strengthens the accountability
practices. However, there have been some scandals recently like Enron and
WorldCom failure that the trust and confidence towards the auditors and their
performance has been questioned. The failure of such big companies has been
linked to the auditing profession. So what actually happened and what changed has
to be made in order to improve the transparency in the audit and its accountability. It
has been observed that there might be a gap where the expectations of the society
from auditors and their actual performance which is perceived by society may be
different (Porter, 1993). The fact that the auditors do not meet these expectations
gives rise to concern about auditing that is expressed through the notion of the audit
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expectations gap (Humphrey, et al., 1993). This gap is known as expectations gap in
the literature which was first proposed by Liggio (1974, p. 27) and defined as the
independent accountant and by the user of financial statements. After that, several
authors came with their own views and explained it differently. The gap might be
between the beliefs or desires that one party has and the beliefs and desires that
another party has, or between a belief and the facts that make the belief true or false
(Dennis, 2010, p.133). Humphrey et al (1992) observed that the common factor in
several author views is that auditors are performing in such a manner that there is a
variance with the desires and belief of the interested users of the audit. According to
Pierce and Kilcommins (1996, p.1), " the audit expectations gap occurs when their
role and duties is compared against the expectations of user groups and the general
public". In contrast with the definition by several authors expectations gap lies under
the word expectations, percieveness and the performance. It is very important that
we distinguish between the auditors perceptions towards their work and the whole
profession expectations itself and also the interpretation by the standard setters.
So, why there is the expectation gap? Why auditors cannot fulfil the users
expectations? In the example of Enron failure why auditors could not find out the
fraud? It is clear from these questions that the auditor was expected to discover
going concern problems or the fraud during their audit. These gaps are may be
expectations from the public or management, lack of audit education or the maybe
the rules set by standard setters are not strong enough. Pierce and Kilcommins
(1996) who argued that there may be a misunderstanding and the misinterpretations
of the meaning of the auditing and profession itself by the users. So, the expectation
gap exists because of the differences between the view of the users and the auditor
or it is the gap between the public requirements and the audit objectives, remains a
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questionable debate whether its a myth or reality. It Is not just about the gap in
beliefs but also what public desire (Dennis, 2010). However, the term expectation
gap itself looks confusing because of the different views towards it and how we
Through an empirical study, Porter (1993) found out that the expectations gap mainly
Reasonableness gap is the gap between what the society expects auditors to
achieve and what the auditors can reasonably be expected to accomplish. The main
reason for this gap is because of unreasonable expectations by the users. It arises
due to lack of societal and technological sophistication and clarification of audit role
(Gray, et al., 2015). Salehi (2011) mentioned that the expectations term which is
perceived by the users are different. They normally misunderstand and misinterpret
the performance expectations of the auditors and look for an absolute assurance.
Nowadays, absolute assurance cannot be met and it has been replaced with
same absolute assurance, which they used to get during 1990s, hence created the
Performance gap is the gap between what society can reasonably expect auditors to
accomplish and what auditors are perceived to achieve. This gap is further divided
into two as Deficient Standard gap and Defiecient Performance gap. Performance
gap is purely linked with the way auditors perform their duties and responsibilities.
expectations which are reasonable cannot be met due to the restrictions by the
standard setters and show the deficiency in the standard. The reason for the
performance gap is raised when auditors are blamed as they are not performing up
to the reasonable responsibilities expected by the society and performing below the
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standards. The reasons might be due to the dependence of auditors on
management, self and conflicting interest of the auditors etc. This arise due to lack of
2015).
There are several issues which are incorporated within the term expectations gap.
There has been a numerous research to confirm that the expectations do exist in
different countries and environments and there are several factors behind the
existence of the expectation gap (Porter & Gowthorpe, 2004). Among the possible
causes or issues in the expectation gaps some are fraud detection responsibilities of
Auditor independence:
Auditor Independence is the fundamental aspect of the auditors professionalism. The
mission of the auditor is to guarantee the truthfulness of the financial reports of the
going concern and it is only possible if they maintain a fully independent position
from them. Any link or sectional interests between the company and the auditor
definitely affects the way auditor work to get the true and fair view of the audit report.
that the auditor is the one to whom they can trust for the independent guarantor of
the financial information of the particular company. There is a view that they are the
independent agents for the shareholders who look after the accounting actions on
managerial agents. Looking at the scandals like Enron, World Com collapse we can
say that there was at least a lack of the independence in the profession. These arise
because these companies retained the same auditors for many years where
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relationships became even stronger between the management and the audit staffs.
May be there was economic incentives for auditors which deviate the audit staff to
act in a truly independent manner (Sikka, 2009). In reality the change in the auditors
became infrequent at those times and thus the danger of lack of audit independent
remains real. Example of Enron and Arthur & Andersen had the same issues where
auditing company was in the favor of what Enron wants to show to the public by
inflating the profits and also they supplied internal audit services, advised on the off-
balance sheet financing and tax avoidance schemes and in return Arthur & Andersen
got huge amount of fee where audit staffs got benefitted and fulfilled their personal
interests.
financial statements at the end of accounting period to the public but public
perceptions towards them is different. They think that the detection of the fraud by
the auditors is one of the important role of them which created an expectation gap
between them. This counts as expectation because public perception is that the role
of the auditors in detecting the fraud should be more active and accurate. But for the
auditors they are just the watch dog not a bloodhound, which means they can be
vigilant for any wrong doing and not suspecting anyone without the valid reason. The
investors and even the management sometimes cannot understand that how
possibly an auditor can detect the fraud within an organization, given that their role is
only about checking whether the financial statements are true by properly stating all
the figures correctly in the statement. This misunderstanding of the auditors role is
creating the expectation gap and became one of the main issues where the role and
auditor will cross check each and every transaction to ensure everything is correct
but the reality is different and may be below the public high expectations.
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Expectations of public related to the issues:
Users of financial reports such as investors, creditors, management, and the public
have their own different views of what auditor should be doing and the reliability of
the audit report. Financial statements should be free from all the errors and frauds
for them to assess the viability and solvency of the business. Expectations of all the
parties are high as they think that auditor can do more than what they should do thus
the resulting gap between the expectation of the users and the reality led the
profession questionable and suspicious. The quality of audit is dependent very much
on whose eyes one looks through (Knechel, et al., 2013). Management are looking
on creating the value for money from external audits by providing assurance and
advising in their financial information. Investors are focused on the report in which
that can be satisfied that the company is going concern as it is fruitful to invest in that
company. Creditors who has suffered loss previously are asking how the auditors
cannot be unaware of the future breakdown of the company and predict before it
happens.
the terms expectations gap in the terms of beliefs and desires. According to him
issue may be the gap of perceiveness and the expectations between the public and
the regulators of the auditors role. So, it is actually the gap in desires of what both
the parties want to do something from the auditors. If not, it can be easily
The issue here is revolving around the current understanding to the expression of
the auditing expectations. The issues are mainly comprising of beliefs, facts and the
desires of the auditors role expected by the users. However, it must be noted that the
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expectation gap comes from the deficiency of either performance or excessive
misconceptions towards the auditors role will persist unless timey solution sand
There are several issues in the term expectations gap. It is very hard to completely
close the gap as the nature of the components is making it very hard to eliminate.
Several authors has defined the way to close the gap in different ways but due to its
such situation narrowing the gap will be the favourable solution but the question is
how to do it? The term expectation itself is misleading and it goes around by talk of
beliefs and desires. Expectation gap varies between what someone belief and what
someone desire. According to Dennis (2010) the possible way to bridge the gap may
be done by reconfiguring the expectations gap in between beliefs and desires and
identifying the reasons for these beliefs and desire. So how can it be reconfigured?
Possible ways may be identifying the evidence of beliefs about what auditors do or
about their duties and if the unawareness has caused such beliefs it is time to
educate them. If the reasoning is based on desires, then practical reasoning from
objectives to these desires should be examined to find out the clearer view of what
they expect. The issues cannot be resolved until we find out the clear view of which
According to Okafor and Otalor (2013) the lack of public awareness and knowledge
is the main factor for their unreasonable expectations so, educating the auditors is
not just the only solution for reducing the gap. Beck (1973) also argued that to avoid
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importance but Moir (1989) argued that public education should be implemented on
the limitations of the audit. However, Porter (1993) said that education should include
the duties of auditors which can be reasonably expected. It appears form the authors
views that education is an effective approach but it should be appropriate and should
address the expectations gap. For e.g. auditors reports should clearly include the
disclaimer clauses mentioning that the report is not the guarantee of the financial
soundness or the accuracy of financial statements and auditirs can add their opinion
into it. Auditing education can be done by conducting mentoring programs, specified
policies, ethical training and education, conventional audit courses etc. (Siddiqui, et
al., 2009).
Being independent in their role will definitely reduce the expectation gap. The ways
independent and they should have the freedom of selecting the appropriate strategy
standards and legislation that anticipates the feasible demands of the society
(Dewing & Russel, 2002) .However, Wolf et al. (1999) argued that establishing an
Ultimately it can regulate the fees and clarify their responsibilities to detect the fraud
The use of structured audit methodologies is one of the responses made by some
audit firms which can help narrowing the gap and eventually reducing the legal
Auditors role is a key part in narrowing the gap between the expectations. Limperg
(1985) observed that the auditors have not just one responsibility rather they have
several in which in one hand they should not arouse greater expectations for public
and in the other hand that should not neglect the expectations evoked while carrying
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out the work. If they fail to do so they will face the criticism and litigation and also the
Looking at all the literatures comments and recommendation we can say that there is
a need for the continued sensitization of the public, by both the auditors profession
and other stake holders on roles of the auditors to avoid any unreasonable
feedback system that can find out how public view their activities. More specifically to
reduce the deficient performance gap the communication within the auditing
environment plays a vital role. It can assist in monitoring and reducing the
possibilities of the audit expectation gap. Licencing procedures should be made strict
to monitor whether auditors comply with the rules and regulations or not. This may
Conclusion:
We can conclude from the literature that the problem of expectation gap is widely
recognized and the causes are indeed complicated. They are raised from some part
expectations, time lag, changing social expectations and also may be the inadequate
performance by the auditors. So, an attempt to fix the real problem between the gap
of expectations of beliefs, facts and desires must be put forward for the correction.
There should be clear set of roles and responsibilities by both the auditing profession
and the regulators to avoid unreasonable expectation by the public. One of the
research done by Litgens et al. (2015) suggested that the profession of audit should
take a completely different route to address the problem of expectation gap. So there
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may be the need of new research, especially in the ways of involving the users of
financial statements in the audit and how a clear communication can be shared and
to what extent and under what condition users expectations can be reduced from the
audit report and enhance the trust. Others ways of continuous monitoring of the
That can be done by the proper training with improved communication and feedback
likely that this gap contributes a major problem for many years to come.
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