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A New approach to Measuring Expectation Gap
Abstract
The main objective of the study is at first identifying the expectation gap about audit responsibility and the second quantifying the expectation gap in Iran. In order to collecting data, a questionnaire designed and developed between auditors and investors. Collected data analyzed by employing non-parametric statistics test. The results show that there is expectation gap between auditors and investors in Iran. The current study employed a new approach in the world in order to quantifying the expectation gap. It gives the more strength to other researchers in order to measuring audit expectation gap in the world.
Introduction
Many users misunderstand the nature of the attest function, especially in the context of an unqualified opinion. Some users believe that an unqualified opinion means that the entity has foolproof financial reporting. Some feel that the auditor should not only provide an audit opinion, but also interpret the financial statements in such a manner that the user could evaluate whether to invest in the entity. There are also users who expect auditors to perform some of the audit procedures while performing the attest function like penetrating into company affairs, engaging in management surveillance and detecting illegal acts and/or fraud on the part of management. It is these high expectations on the part of users of financial statements that create a gap between auditorsrsquo; and usersrsquo; expectations of the audit function. In addition, the users also place the responsibility for narrowing the gap on auditors and others involved in preparing and presenting financial statements.
Various studies have confirmed the existence of the audit expectation gap. Prior literature in audit expectation gap evinces that the expectations gap between auditors and financial statement users has existed for the past hundred years. The audit expectation gap has become a topic of considerable interest worldwide, for research in general, and in the advanced countries like the U.S, the U.K, New Zealand, Germany and Singapore in particular for the last thirty years. This is due to the occurrence of series of corporate failures, financial scandals and audit failures in these advanced countries and their subsequent impact on other countriesrsquo; audit profession. The literature available on audit expectation gap and related matters evinces the extent to
which the auditing environment has become litigious.
The widespread criticism of and litigation against auditors indicates that there is a gap between societyrsquo;s expectations of auditors and auditorrsquo;s performance as perceived by society. The majority of research studies indicate that the audit expectation gap is mainly due to usersrsquo; reasonable expectations of audits as well their as unrealistic perceptions of the audit professionrsquo;s performance. According to these studies, the differences may be attributable to usersrsquo; misunderstanding of what is reasonably expected from an audit, and of the actual quality of the audit work. Although a number of explanations for the existence and persistence of the audit expectation gap appear in the literature, references to usersrsquo; misunderstandings of the role, objectives and limitations of an audit, inadequate audit standards and Deficient auditor performance capture the main essence of its causes. This results in usersrsquo; dissatisfaction with auditorrsquo;s performance that undermines confidence in the auditing profession and the external audit function.
Audit Expectation Gap
The term lsquo;expectation gaprsquo; is commonly used to describe the situation whereby a difference in expectation exists between a group with a certain expertise and a group, which relies upon that expertise. The public perception of an auditorrsquo;s responsibility differs from that of the profession and this difference is referred to as the expectation gap. The term has been used not only in the accounting literature, but also in other fi elds, for example, to describe the perceptions of the information systems industry relating to the academic preparation of graduates (Trauth et al., 1993); difference in expectations of advertising agencies and their clients with respect to campaign values (Murphy and Maynard, 1996); differences in relation to various issues associated with corporate environmental reporting on one hand and the clash between auditors and the public over preferred meanings of the nature, objectives and outcomes of an audit (Sikka et al., 1998) and (Deegan and Rankin, 1999); the gap in banks between the transaction-audit approach that evolved during the industrial age and the information age (Singh, 2004); and a financial reporting expectation gap (Higson, 2003).
Most of the times, financial statement users consider an auditorrsquo;s report to be a clean bill of health. Thus, most usersrsquo; expectation towards auditors is far more than what it should be. Expectation gap occurs when there are differences between what the public expects from the auditor and what the auditor actually provides. The expectation gap is the gap between the auditorrsquo;s actual s
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