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Audit Expectation Gap and Its Impacts

   

Added on  2020-03-01

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Running head: AUDIT AND CORPORATE GOVERNANCEAudit and Corporate GovernanceName of the StudentName of the UniversityAuthor’s Note
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1AUDIT AND CORPORATE GOVERNANCEIntroductionAuditing is the process of inspecting the financial reports of the business organizations inorder to confirm that there is not any material misstatement or frauds in them. In the process ofauditing, one of the major concepts is the Audit Expectation Gap. Audit expectation gap can bedefined as the difference between the expected and actual performance of the auditors (Gold,Gronewold and Pott 2012). As per the American Institute of Certified Public Accountants(AICPA), audit expectation gap can be described as the gap or difference between what the usersof financial statements and public expect the auditors are responsible for and what the auditorsbelieve what their responsibilities are (Ruhnke and Schmidt 2014). In many of the cases it hasbeen seen that the there are difference between the performance of the auditors. The concept ofaudit expectation gap has been developed out of this concept. In addition, audit expectation gapcan also be defined as the gap between the effectiveness of the process of audit engagements.Thus, it can be said that audit expectation gap is a vast area that helps to identify the gap in theexpected and actual performance of the auditor (Porter, hÓgartaigh and Baskerville 2012). Processes to Reduce Audit Expectation GapOver the decades, the users of financial reports target the auditors for not doing their jobsin the appropriate manner. This process leads to the development of audit expectation gap of theauditors. However, some specific methods are there for the reduction of audit expectation gap.Some of the methods are discussed below:Expanded Audit Report: Many research programs have been conducted for the investigation ofthe messages communicated by the auditors in the financial reports. In this regard, expandedaudit report plays an important part. It has been seen that the users of financial reports perception
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2AUDIT AND CORPORATE GOVERNANCEregarding the responsibilities of management and auditors have been changed with theintroduction of expanded audit reports. The wording modification of the auditor’s report hassignificantly changed the nature of audit report of the companies (Velte and Freidank 2015). Incase of the bankers, it has been seen that they have found that the expanded audit reports aremore understandable and useful when compared with the short form of audit reports. Accordingto most of the research and studies in the same filed, it has been seen that the expanded auditreport is useful to provide full understanding of the significance, nature and scope of the auditprocess and it also creates influence the user’s perception regarding the role of the auditors.Thus, based on the above discussion, it can be said that the expanded audit report has significantrole in redoing the audit expectation gap.Pros: Expanded audit reports provide the users with the detailed financial and accountinginformation of the company. Thus, the users can judge the true financial health of the company.In addition, the investors of the companies use this expanded audit reports in order to make theirinvestment decisions (Mgbame, Eragbhe and Osazuwa 2012).Cons: It needs to be mentioned that often expanded audit reports are polished on short-term basislike half yearly pr quarterly. In many cases, it can be seen that the expanded audit reports putoveremphasis on the short-term results of the companies that harm the company and many of thestakeholders in many ways.Education: According to many studies and researches, knowledge of the users has influence onthe audit expectation gap. Thus, it can be said that education has significant role to play innarrowing the audit expectation gap (Ihendinihu and Robert 2014). Many studies state that theeducated and knowledgeable users place less responsibility on the auditors. On the contrary, less
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