Auditing Expectation Gap: Implications on Clients, Public, Regulators

This essay explores the expectation gap in auditing, analyzing its implications for clients, the public, and regulators. It examines how the subjective nature of auditing concepts, stricter regulations, and misperceptions contribute to this gap. For clients, the gap affects the perceived value of audit services and the clarity of audit reports. For the public, it stems from misunderstandings about auditors' responsibilities in detecting fraud. Regulators face the challenge of bridging this gap by improving audit quality and communication. The essay further discusses how innovative audit approaches, enhanced regulations, and improved audit report formats are crucial in addressing the expectation gap and ensuring that stakeholders receive accurate and reliable financial information. The document is available on Desklib, a platform offering a wide range of study tools and solved assignments.

Running head: EXPECTATION GAP
Expectation Gap
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Expectation Gap...............................................................................................................................2
1. Implication on Client...............................................................................................................2
1.1 Approach to Auditing............................................................................................................2
1.2 Regulation on Auditing..........................................................................................................2
1.3 Form of Audit Report............................................................................................................3
1.4 Communication of Audit Matters..........................................................................................3
2. Implication on Public...............................................................................................................3
2.1 Approach to Auditing............................................................................................................3
2.2 Regulation on Auditing..........................................................................................................4
2.3 Form of Audit Report............................................................................................................4
2.4 Communication of Audit Matters..........................................................................................4
3. Implication on Regulators........................................................................................................5
3.1 Approach to Auditing............................................................................................................5
3.2 Regulation on Auditing..........................................................................................................5
3.3 Form of Audit Report............................................................................................................5
3.4 Communication of Audit Matters..........................................................................................6
References........................................................................................................................................7

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Expectation Gap
Usefulness of audit is seen to a wider category of stakeholders such as client, public,
regulators and others. Auditors receives regular criticism whenever companies fail shortly after
issuing unmodified audit opinion or when auditors become unsuccessful in detecting fraud. The
expectation of stakeholders of the role and responsibilities of the auditors exceed performance of
the auditors as perceived by them; and this is called Expectation Gap (Litjens, van Buuren &
Vergoossen, 2015). The following discussion shows the implication of this expectation gap on
three parties which are Client, Public and Regulators.
1. Implication on Client
1.1 Approach to Auditing
Clients have to face the problem of expectation gap because of the subjective nature of
concepts in auditing that have not been described in the auditing standards, but they have been
left to the auditors’ judgment; such as reasonable assurance, fair judgment, adequate, the concept
of importance and credibility.
1.2 Regulation on Auditing
Expectation gap have largely contributed to the attempt to reduce this gap and this
ensures that the clients receive proper audit services. Auditing regulations have been developed
for educating the audit clients to develop the acceptations having more consistency with the
current duties of the auditors. After that, certain measures have been introduced for reducing the
failure of the auditors with the intention of achieving greater equivalence actual performance of
the auditors and applicable standards of audit; like better professional training for the auditors, in

4EXPECTATION GAP
production of more severe supervision programs along with more severe penalties and others
(Salifu & Mahama, 2015).
1.3 Form of Audit Report
The presence of an expectation gap can be seen between the auditors and the clients who
are the users of auditing services that expresses opinion about the responsibilities and duties of
the auditors along with the message conveyed through audit report. This creates a gap between
that the clients expect from the auditors and what they receive from them. This contributes to the
issue of such audit report that fails to satisfy the users of the audited financial statements.
1.4 Communication of Audit Matters
Lack of communication skills of the auditors contributes to the development of
expectation gap. Expectation gap hampers the communication of key audit issue by the auditors
in audit report which affects the decision-making process of the users (Onulaka, 2015).
2. Implication on Public
2.1 Approach to Auditing
The general misperception of the public on the responsibilities of the auditors is
considered as a key factor contributing towards the development of expectation gap; and the
complexity in auditing is the result of the changing audit approach since there has been persistent
change in the audit model over the years. Previously, detection of fraud and errors for ensuring
the accuracy of the financial accounts used to be the main audit approach; but in the recent years,
enhancement of the integrity and credibility of the financial statements and financial information
is the main approach. Therefore, this considerable change in audit approach is creating confusion

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for the public having inadequate knowledge and exposure on auditor’s roles, responsibilities and
functions (Masoud, 2017).
2.2 Regulation on Auditing
With the aim to reduce this expectation gap for the public, more strict regulations have
been brought into the audit profession so that the auditors can follow them for detecting the
frauds in the financial statements and this assists the auditors in issuing the appropriate audit
opinion so that the public can use them for making different decisions (Nwaobia, Luke &
Theophilus, 2016).
2.3 Form of Audit Report
These regulations have improved audit reports include the proper description and
information on the major issues encountered by the auditors in the audit engagement procedures.
For example, introduction of ‘Key Audit Matter’ helps the auditors in communicating the key
issue through the audit report so that the public can know about these issues.
2.4 Communication of Audit Matters
Apart from these, audit regulators have issued many documents and papers so that it
becomes easy in communicating the roles, responsibilities and functions of the auditors. This is
reducing the expectation gap between the public and auditors. At the same time, this has
facilitated in smooth communication of the audit related information among the clients, auditors
and users of audited financial statements (Dowling, Knechel & Moroney, 2018).

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3. Implication on Regulators
3.1 Approach to Auditing
Expectation gap in auditing has created key impact on the auditing approaches since the
regulators are working towards ensuring increase in audit quality through the introduction of
innovative audit approaches. Regulators have taken into account the perspectives of clients,
public, investors and others on the approaches of the auditors so that these approaches can be
improved for the detection of material misstatements in the financial statements.
3.2 Regulation on Auditing
It became necessary for the users to break down the components of expectation gap for
the analysis of potential regulatory initiatives so that effective, appropriate and targeted solution
can be found. Each facet of the expectation gap informs the regulators to assess the why the gap
exists and how to solve the issue with regulation. Therefore, it can be said that the existence of
different types of expectation gap in auditing assist the regulators in analyzing the present issues
when finding the potential solutions (pcaobus.org, 2020).
3.3 Form of Audit Report
Expectation gap in auditing has created some major implications on the regulators as the
role of the regulators is to ensure increase in audit quality through issuing the appropriate audit
report through innovative regulatory approaches. Regulators have taken into account the
perspectives of clients, public, investors and others on the roles, responsibilities and performance
of the auditors along with the information communicated by them. This has contributed in the
development of such audit regulations that ensure issuing appropriate audit report by the
auditors.

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3.4 Communication of Audit Matters
Expectation gap in auditing puts the obligation on the regulators for developing strategies
in order to improve communication of any update in any of the present auditing requirements
that needs to be easily accessible for all parties. This is now the responsibility of the regulators to
inform public about any changes in the present audit regulations while explaining the rationale
for the same. This allows the public in being better informed about the audit requirements which
is a key in reducing the expectation gap.

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References
Accaglobal.com. (2020). Closing the expectation gap in audit. Retrieved 24 March 2020, from
https://www.accaglobal.com/content/dam/ACCA_Global/professional-insights/
Expectation-gap/pi-closing-expectation-gap-audit.pdf
Audit Expectations Gap: A Framework for Regulatory Analysis. (2020). Pcaobus.org. Retrieved
24 March 2020, from https://pcaobus.org/News/Speech/Pages/Franzel-speech-Institute-
12-13-16.aspx
Dowling, C., Knechel, W. R., & Moroney, R. (2018). Public Oversight of Audit Firms: The
Slippery Slope of Enforcing Regulation. Abacus, 54(3), 353-380.
Litjens, R., van Buuren, J., & Vergoossen, R. (2015). Addressing Information Needs to Reduce
the Audit Expectation Gap: Evidence from D utch Bankers, Audited Companies and
Auditors. International Journal of Auditing, 19(3), 267-281.
Masoud, N. (2017). An empirical study of audit expectation-performance gap: The case of
Libya. Research in International Business and Finance, 41, 1-15.
Nwaobia, A. N., Luke, O., & Theophilus, A. A. (2016). The new auditors’ reporting standards
and the audit expectation gap. International Journal of Advanced Academic
Research, 2(11), 118-133.
Onulaka, P. N. (2015). Self-Regulatory Policy of Accounting and Auditing Profession and Its
Effect on Audit Expectation Gap in Nigeria. International Journal of Accounting and
Financial Reporting, 5(2), 98-121.

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Salifu, I., & Mahama, M. (2015). The evaluation of evidence of the audit expectation gap in
Ghana. Evaluation, 6(24).