ACCTING 3502 Auditing

Analyse the data you have collected in the previous task to answer the question is there evidence of the audit expectation gap. Statistical testing is not required because you don't have enough data for testing. Use the data you have to support your answer to the question. You will need to provide references to published sources when you contrast what your respondents think auditors do to what auditors actually do.

Answer:

Based on the responses that have been collected through the survey, the following set of expectations tends to emerge from the auditors on behalf of the users.

• The audited financial statements are more accurate than non-audited financial statements which imply that the users tend to rely more on external controls rather than the internal controls.
• Additionally, it is also felt that most users that auditors can remove mistakes which otherwise the client would not remove because of vested interests.
• Besides, most of the respondents believe that if the auditors act with sincerity and integrity, then there would not be any mistakes. As a result, some respondents opine that audit done by large companies would be potentially more reliable as they are less likely to consider fraud.
• There is a particular respondent who believes that audited statements are more trustworthy than the non-audited ones as it comes with the legal liability of the auditor for any misrepresentation.
• Apparently no respondent seems to talk about the skill of auditor and the underlying circumstance such as the internal controls in the client firm playing a critical role in the overall audit service.
• Also, there are wide variations as to what the auditor exactly does but most respondents have a broad overview that they tend to ensure that the financial statements are correct.

As a result, a general image of the auditor is a professional who can make the financial statements more accurate by independently checking the various records and relevant accounts provided they act with integrity an responsibility. 

The above responses clearly reflect that there is an audit expectation gap as the role of the auditors as understood by the professionals is indicated below.

• The role of an auditor is to reduce the overall audit risk by adhering to relevant audit procedures and tests if required (Arens et.al., 2013).
• There is no guarantee that the audited financial statements would not contain any error as the audit risk cannot be ever made zero and some risk would always remain despite prudent management of the same (Salehi, 2011).
• The auditor or the underlying audit firm is not liable for inaccuracies in the financial statements. They are liable only if negligence was observed on part of the auditor or the auditor commits fraud by forming a quid pro quo relation with the top management (Swamy & Salehi, 2011).
• The risk of misstatement in the financial statements more than the integrity of the auditor or the audit team would depend on the underlying skills possessed by the auditor along with the circumstances such as the level of internal control and corporate governance norms (Gay & Simnett, 2012).

It is apparent from the above discussion, that there is clear evidence of audit expectation gap as the understanding and expectation from the audit function are very different for the users and the auditors.  It is imperative that mutual information exchanges must be frequently done between audit professionals and the users so as to narrow down the expectation gap and understand the inherent limitations of the audit professionals while ensuring higher trust and better services (Swamy & Salehi, 2011). 

References

Arens, A., Best, P., Shailer, G. & Fiedler,I. (2013). Auditing, Assurance Services and Ethics in Australia( 2^nd ed.), Sydney: Pearson Australia

Gay, G. & Simnett, R. (2012), Auditing and Assurance Services in Australia (5^th ed.), Sydney: McGraw-Hill Education

Salehi, M. (2011), Audit expectation gap: Concept, nature and trace, African Journal of Business Management, 5(21), 8376-8392

Swamy G.H. & Salehi M (2008), Audit Expectation Gap in Auditor Responsibilities: Comparison between India and Iran. International Journal of Business Management, 3(11), 134-146.