Audit Expectation Gap and Threats to Audit Independence in Australia

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and Assurance in Australia
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Author’s Note

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MEMO
To: William Albanese
From: The Audit Manager
Date: 31th August, 2019
Subject: Audit Expectation Gap and Threats to Audit Independence
The main objective behind writing this memo is to provide the required information on two
crucial aspects of audit engagement for the audit of Bletchington Limited (Bletchington).
Audit Expectation Gap – Audit Expectation Gap is considered as a crucial aspect in the audit
engagement process and it can be defined as the difference between what the users of the
financial reports and public consider auditors are responsible for and what the auditors
themselves believe their responsibility (Ruhnke & Schmidt, 2014). It can be seen from the case
of Bletchington that it is one of the largest clients of SBF. It is a large manufacturing company
that involves in business with the countries having demographically elected government. All
these factors indicates towards the fact that Bletchington has certain special users of their
financial reports; they are governments of the trading countries, owners and investors, suppliers,
lenders, employees and management (Litjens, van Buuren & Vergoossen, 2015). Now, it is
mentioned earlier that the occurrence of audit expectation gap can be seen when there is a
difference between the expectations of the users of the financial statement and the assurance
providers that are the auditors. The presence of audit expectation gap will indicate that there is
any alignment between the financial statement users’ belief and the performance of the auditors
(Okafor & Otalor, 2013). The same aspect can take place in the audit engagement of
Bletchington because of the fact that the users of the financial statements of the company may

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want more that what the auditor provide. The users of the financial statements of Bletchington
can be impractical in their views and thus, the audit engagement partner may have to face
unrealistic expectations. Some of them are mentioned below:
 The auditors of Bletchington provide complete assurance.
 The auditors guarantee the future feasibility of Bletchington.
 The auditors will provide the unqualified audit opinion which implies that all the
accounts of Bletchington are completely correct.
 The auditors will definitely find the frauds and errors in case there is any in
Bletchington’s financial statements.
 Every transaction of Bletchington has been checked by the auditors (Litjens, van Buuren
& Vergoossen, 2015).
However, in reality, the auditors do not fulfill the above-mentioned expectations of the users of
the financial statements because the auditors are responsible for the following:
 The auditors are responsible for providing reasonable assurance only.
 The auditors do not provide the guarantee for the future viability of the entities.
 The auditors only provide an unqualified audit opinion when they believe that there are
not any material misstatements in the entity’s financial statements.
 The auditors do not guarantee on the fact that there is not existence of any fraud, but it’s
their responsibility to undertake reasonable steps to expose any fraud.
 It is the responsibility of the auditors to test only a sample of the financial transactions of
the entities (Kamau, 2013).