AUDIT EXPECTATION GAP
The expectation gap is the difference ( or gaps) between :
Expectation gap is the term used to signify the difference in expectations of users of financial statements and auditor’s expectations concerning audited financial statements. It can also be explained as the difference between the effectiveness of audit engagement what users believe and what auditors believes. i.e. What users believe audit is and what audit actually is.
THE EXPECTATION GAP
There are three main elements in the expectation gap:
A Standard gap: This occurs because of a perception that auditing standards are more prescriptive than they actually are, and that auditors have wide-ranging rules they must follow.
A Performance gap: This occurs because of a perception that audit work has fallen below the required standards.
A liability gap: This arises from a lack of understanding about the auditor’s liability and who the auditor may be liable to.
In addition, there is a perception that auditors have a responsibility for detecting all fraud, whenever this occurs:
High level of expectations about what auditors should do may lead to legal action against auditors if this level of expectations is not met.
CLOSING THE EXPECTATION GAP
A number of strategies exist that could assist in closing the
expectation gap and are follows:
PROFESSIONAL SCEPTICISM IN AN AUDIT OF FINANCIAL STATEMENTS.
The public places value on the independent financial statement
audit because it enhances the degree of confidence of intended
users in the financial statements. A high quality audit features the
exercise of professional judgment by the auditor and importantly,
a mind-set that includes professional skepticism throughout the
planning and performance of the audit.
WHAT IS PROFESSIONAL SCEPTICISM?
ANSWER: This can be defined as an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessments of audit evidence.
They explicitly require the auditor to plan and perform an audit
with professional skepticism recognizing that circumstances may
exist that cause the financial statements to be materially misstated.
i.e. An inquisitive mind