Expectation Gap in Audit

Fact – Definition

• Porter (1993) defines the audit expectation gap as the gap between society’s expectations of auditors and auditors’ performance as perceived by society. Scribd+7tandfonline.com+7mab-online.nl+7

Elaboration – Components

Porter splits the gap into: archive.aessweb.com+2FutureLearn+2

1. Reasonableness gap

   • Difference between what the public thinks auditors should do and what auditors can reasonably be expected to do under standards and cost constraints.

2. Performance gap

   • Difference between what auditors are reasonably expected to do and what they are perceived to actually do.

   • Includes:

     • Deficient standards (standards not strong enough);
     • Deficient performance (auditors not meeting standards).

Typical Causes

• Public thinks auditors guarantee no fraud, but actually auditors provide reasonable, not absolute, assurance.
• Misunderstanding of auditor’s role in going concern, internal controls, and fraud detection.
• High-profile corporate failures where people feel auditors “should have known”.

Example

• After a big fraud scandal, the public says:

  • “Where were the auditors? They should have caught every fraud!”

• In reality, standards require auditors to assess risk of material misstatement due to fraud, but not to guarantee to catch all fraud.

• This misunderstanding = expectation gap.

To reduce the gap:

• Improve communication in audit reports;
• Educate users about audit limitations;
• Strengthen standards and enforcement.