The Audit Expectation Gap - Essay

QUESTION 01
Audit Expectation gap
The audit expectation divides the general public's expectations of the audit with what a
financial audit actually demands. In other cases, this difference is not the result of a failure to
audit but rather the achievements of the auditors' public wishes. There is a difference between
anticipation and reality in either scenario, (Ruhnke & Schmidt, M, 2014, p1 (1))
Approaches to reducing the expectation gap.
These prescriptions are definitely arduous to increase an auditor's ability to detect fraud.
Detection of fraud calls considerable effort and the ability to work together. Capacity is
improved by experience, training and effort. Strong audit planning, brainstorming and skills
boost efforts. All auditors, internally and externally, have the problem of reducing the
expectation gap. While law, regulation and auditing standards have advanced significantly in
this profession, this guidance must be used within its own ranges and the effort expensive and
the ability to narrow this gap, (Salehi, M. 2011, p2(1)).
Uncovering all sorts of fraud cannot be held to account by auditors. It is quite difficult to detect
collusive fraud and other sophisticated methods. However, this does not offer auditors a clear
basis to stop seeking fraud, (Salehi, M. 2011, p2(1)).. Developing the appropriate attitude,
incorporating forensic methods and asking questions about fraud all raise the likelihood of
auditors to uncover it.
Awareness and training of practitioners in public of auditors' obligations and duties •
(external Auditors).
Improve audit standard quality and ongoing audit performance monitoring.
QUESTION 02
Accepting decisions are vital in auditing, because these commitments might represent risks to
objectivity and risk exposure, which should be carefully assessed by the auditing company. Late,
many of the concerns under discussion in the auditing industry are whether the non-audit
service providing for audit clients should be banned outright. In light of a potential new audit

commitment, the International Standard on Auditing (ISA) criteria require the company to
decide whether preconditions for audits exist. All these factors require careful adoption of
decisions, (Whittington & Pany, 2010, p3 (1)).
In accordance with the Professional Accountants Ethics Code of IFAC, a professional accountant
in public practice shall assess before establishing a new client connection, if acceptance would
threaten the observance of the basic principles. Potential integrity threats or professional
behaviours. Such threats may alert the customer of certain doubtful problems, i.e. its owners,
management or operations, (Whittington & Pany, 2010, p3 (1)). This implies the Company
should look at the potential customer, its owners and its business activity in order to assess
whether doubts about the integrity of the potential customer generate unacceptable risks
when it comes to taking a new customer. These investigation measures are normally carried out
using due diligence methods, also to comply with the legislation on anti-money laundering.
Ethical, legal and other factors to be considered before accepting an audit appointment
Ethical factors
Management Pressure
Public firms may be putting undue stress and pressure on accountants to produce their
accounts and financial statements by the responsibility of success at a high level. For these
accountants, the ethical problem is to preserve honest reporting of the assets, liabilities and
profits of companies without allowing management and corporate managers to exercise any
pressure on them, (Brennan et al, 2007, p3(2)). Unethical accountants can easily change
financial records for companies and maneuver numbers to present deceptive image of
corporate triumphs. Whistleblower's accountant.
A financial accountant may be confronted with the ethical problem that the financial
accountings standard board has detected infringements. Although it is the obligation of an
ethics accountant to disclose these offenses, the repercussions of the reporting present the
difficulty. Government scrutiny of financial records and the bad press of an accounting scandal
might lead to a quick decrease in the company and thousands of employees were dismissed.

Managers and other business leaders could face criminal prosecution, which might lead to
significant penalties and imprisonment, (Brennan et al, 2007, p3 (2)).
The Greed Effects.
Avidness in the realm of business and finance leads to the removal of ethical limits and
protections to make up more money. An accountant can never let the desire to earn a better
livelihood and gain more wealth prevent her from following the ethical financial reporting
requirements. An accountant who keeps eye on his own bank account more than the balance
sheet of his company becomes responsible to the firm and might lead to actual accounting
infringements, leading to SEC penalties.
Financial records can be issued.
An accountant may be asked by an officer or other executive to hide or exclude specific
financial figures from a budget that could illuminate the business in a negative light for
government and investors, (Brennan et al, 2007, p3 (3)). Omission may not appear to be a
substantial infringement of accounting ethics for an accountant because it does not entail
direct numbers or data manipulation. This is why an accountant must be ethically cautious so
that he does not fall into such a trap.
Legal issues
Financial reporting fraudulent.
Over the last two decades, most accounting scandals have focused on financial reporting fake.
Fraudulent financial reporting is the corporate management's mistake in financial statements.
This is usually done in order to deceive and preserve the share price of the corporation. Whilst
the impacts of false financial reporting may in the short term increase the company's stock
prices, it has nearly always had negative long-term implications. This short-term approach is
sometimes called "myopic management" in company finances, (Krishnan et al, 2011, p2 (3)).
Disclosure.

As a sub-topic of falsified financial accounts, breaches of disclosure are ethical faults. While
deliberate recording is not deemed fraudulent financial reporting in line with generally
accepted accounting principles, it could also be considered fraudulent financial reporting unless
investors are able to provide information that would alter their company's investment
decisions. The managers of the company must go ahead and preserve the company's
proprietary information is crucial to the management, (Krishnan et al, 2011, p2 (3)).
Steps that need to be taken prior to the appointment
ISA 210 sets out the prerequisites for an audit. Use by management of an acceptable financial
reporting framework to prepare and consult financial statements and manage as well as for
management at the location of an audit, (Brennan et al, 2007, p3 (3)).This must be done by the
auditor:
The auditor shall examine the suitability of the financial reporting structure while
generating the financial statements.
Evaluation of whether legislation or regulation prescribes the appropriate financial
reporting framework, the financial reporting aim and the type of reporting body. In most
circumstances, the client should merely be confirmed that financial reporting standards
are in place or that the financial statements have an analogous national reporting
structure.
The auditor must also gain management agreement to acknowledge and understand his
responsibilities for the production of financial reporting and internal monitoring
framework, in order to make financial statements prepared without major errors due to
fraud or error.
QUESTION 03
Part a
Sufficient and Appropriate Audit Evidence