The Audit Expectation Gap


The audit expectation space is crucial to the auditing occupation because the higher the unfulfilled anticipations from the general public, the low is the trustworthiness, making potential and prestige associated with the work of auditors. The purpose of this newspaper is to uncover the causes of an audit expectation difference. It is revealed that the lifestyle of an audit expectation difference is due to complicated nature of audit function; conflicting role of auditors; retrospective evaluation of auditors' performance; time lag in responding to changing expectation; and self-regulation process of the auditing profession. For many years the auditing occupation has been troubled with high degrees of litigations and accusations. Such a difficulty has reached an unprecedented level consequently of the impressive land of well-publicized businesses like Enron and WorldCom (Porter & Gowthorpe, 2004). Porter (1993) argues that the recent upsurge in criticism of and litigations against auditors is due to the failure of auditors to meet society's objectives. The failure of living up to societal goals have implicated the notion of "audit expectation gap". The "expectations space" is the difference between what users of financial assertions, everyone perceives an audit to be and what the audit profession state is expected of them in doing an audit. In this esteem, it is important to distinguish between your audit profession's goals of audit similarly, and the auditor's understanding of the audit on the other hand. Apart from users of financial claims and everyone, an auditor may also perceive a somewhat different interpretation or worse still, neglect to comply with the standards established by the audit job.

If users of financial assertions and everyone were informed to feel that the auditor's role embraces the detection and avoidance of fraudulence, especially in relation to materials items, the scam and error diagnosis role of an audit could be relatively objective. However, the Auditing Routines Board cannot guarantee definite objectivity since materiality "and" materials value are subjective concepts, which require further clarification. A return to the primary role of detection and prevention would also be welcomed since there are in present, not sufficient procedures to carry the auditor responsible for negative outcomes of his actions. Some resources of academic literature assume that the meaning of the audit is not objective/set whilst other sources such as articles of audit accounts assume that the meaning of audit is set. In relation to the latter assumption, there is certainly the fact that the expectations distance could be significantly reduced - if not possible to eliminate.

Auditing is more and more difficult and challenging, with new regulations pushing, if not needing, auditors to enhance their efforts to detect scams during an audit. Alas, these rules and regulations contain conditions like "reasonable, " "material, " "professional scepticism, " and "brainstorming, " whose meanings range in the heads of different auditors.

The "expectation gap" displays a perceived difference between what you are expected to accomplish by others and what one individually feels he must attain. For instance, the air travel industry now expects a significant part of flights to be delayed during the busy summer months. Individuals do not sign up to this same notion, so when their plane tickets are postponed, this exposes an expectation gap.

Auditors face similar obstacles as it pertains to detecting fraudulence within an audit. In many instances, they aren't sure how much work must be made to uncover red flags for scam. More important, they don't always take the correct steps to uncover scam once a red flag surfaces during an audit. Clients, judges, shareholders, and other gatherings, however, expect auditors to take steps to detect fraud during the audit. They are generally displeased when scam goes undetected and is also later uncovered by the tip or mishap. The resulting analysis or financial statement restatement creates negative implications for the business and its employees.

The reasons an auditor may fail to identify red flags during an audit are the following
  • Over reliance on consumer representations;
  • Lack of understanding or recognition of observable condition indicating scam;
  • Lack of experience;
  • Personal associations with clients;
  • Failure to brainstorm potential fraudulence schemes and scenarios; and
  • A desire "never to know. "

The expectation gap is motivated by two variables: the auditor's potential to detect scam, and the auditor's initiatives to detect fraud. An auditor may have got the skills to detect scam, but might choose to take shortcuts or disregard clear signs or symptoms of potential scam. Or, an auditor might use a variety of techniques, but lack the knowledge to effectively uncover warning flag. Both scenarios will broaden the expectation distance.

An auditor must develop the essential skills to identify fraud and acquire sufficient knowledge of the guidelines and regulations in order to better know very well what is required during an audit. Affirmation on Auditing Standards (SAS) 99, Awareness of Scams in a FINANCIAL RECORD Audit, requires auditors to acquire "reasonable" guarantee that material fraudulence is not present. The Institute of Internal Auditors (IIA) standard 1210. A2 requires auditors to have got "sufficient knowledge" to recognize indicators of fraudulence. Whatever the words "reasonable" and "sufficient" signify to auditors will not matter if they fail to discover fraud. The meanings of "reasonable" and "sufficient" will be dependant on their manager, client, mature management, or the judge or jury in a lawsuit.

Developing Fraud Detection Skills

Fraud examiners rely on the following tools
  • Knowledge of specific scam schemes and scenarios;
  • Knowledge of suitable regulations;
  • Excellent communication skills; and
  • Strong interviewing skills.

While auditors can't be expected to develop these skills to the amount of a fraud examiner, they should try to become more efficient through training, hands-on experience, reading the professional literature, brainstorming, and using fraudulence detection skills during the audit.

Training and awareness: All auditors should have routine knowledge of fraud schemes to be able to better position themselves to identify warning flag during an audit. Auditors can begin by creating a basic knowledge of fraud techniques and cases, as well as why people commit fraudulence. Organizations such as the IIA, the Country wide Connection of Certified Valuation Analysts (NACVA), and the Connection of Certified Scam Examiners (ACFE) offer training that delivers a basic knowledge of the various strategies relating to financial statement fraud, property misappropriation, and bribery and problem plans. Auditors who develop significant fraud-detection skills can make to pursue certifications such as the ACFE's Certified Scam Examiner (CFE) and the NACVA's Authorized Forensic Financial Analyst (CFFA). Furthermore, many colleges and universities now offer scams detection and examination courses as part of their business, accounting, or audit programs. Some academic institutions even offer more complex degrees in neuro-scientific forensic studies. This training typically ranges from a basic one-to-four-hour overview of fraud recognition to a three-day detailed course, where auditors look for fraud by reviewing case studies, engaging in-group consultations, and reviewing genuine data.

Brainstorming: Brainstorming scams dangers are critical to an effective audit and discovering red flags for scam. If little or nothing else, brainstorming will generate a way of thinking for auditors to believe like a fraudster, encouraging the adage, "to catch a crook, learn to think like one. " About 50% of all auditors brainstorm fraudulence risks prior to the start of any audit. Of auditors who use brainstorming as a scams detection tool, only about 50 percent make it a formal process where they file the strategies and identify techniques aimed at uncovering red flags. The other auditors carry out brainstorming on a more casual basis and confess to taking into consideration the risk for fraud without officially documenting this factor.

A more formal brainstorming process is necessary to fully reap the benefits of this exercise. For instance, auditors might use a spreadsheet and entail a team of at least three auditors. Preferably, the team should contain a scams examiner or an auditor experienced in scams detection. Pursuing these guidelines can make brainstorming more effective
  • Make it fun and interactive, with everyone participating.
  • Present a fraud case study to stimulate replies.
  • Involve an experienced fraudulence examiner.
  • Identify prior company frauds in the conversation.
  • Use a facilitator.
After the brainstorming procedure, it is vital to plan and perform the audit relative to the schemes and scenarios determined during the debate. For instance, if procurement scams was determined as a high-risk area, the audit should include steps to identify warning flag. These steps could are the following
  • Using data analytics to recognize suspicious suppliers;
  • Reviewing vendor spending for the previous 12 months to identify suspicious patterns, including duplicate payments;
  • Analysing vendors with postoffice field addresses to find "ghost vendor" techniques;
  • Comparing staff addresses to supplier addresses for possible complements;
  • Contacting suppliers that bid unsuccessfully for contracts, to check out the bidding process; and
  • Running a Benford's Laws (which predicts the incident of digits in data) examination on supplier invoices to recognize suspicious habits of invoice volumes.

Interviewing skills: Auditors should think about effective interviewing as a basic forensic tool to utilize during an audit. Auditors can benefit from creating a basic awareness of deception and when someone may be resting.

Generally, people are cooperative, energetic, receptive, and supportive of auditor's initiatives. The auditor should spend the first quarter-hour roughly of any discourse with an interviewee building rapport. It's important to watch the individuals mannerisms, body gestures, and overall demeanour. It is also important to listen to an individual's tone of voice, determination to volunteer information, and design of responding to questions. Once an auditor establishes a rapport with the interviewee, she can check out the type of questioning from the audit. It really is at this time an auditor needs to be aware of any change in verbal or nonverbal behavior.

Reducing the Gap

The above prescriptions for increasing an auditor's ability to detect fraud are undeniably arduous. Scam detection requires effort and the capability to work together. Ability is enhanced through experience, training, and effort. Effort is increased through stable audit programs, brainstorming, and potential. The challenge to lessen the expectation gap stands before all auditors, inner and external. While the occupation has made great strides through legislation, legislation, and audit benchmarks, it must apply this instruction within its own ranks, expending the effort and developing the capability to reduce this difference.

Auditors cannot be held in charge of uncovering all types of fraudulence. Collusive frauds and other elaborate schemes are extremely difficult to uncover. This will not, however, give auditors a blanket reason to refrain from looking for scams. Producing the right state of mind, embedding forensic techniques, and asking about scams all increase auditors' likelihood of finding it.


The auditing job believes the upsurge in litigation against, and criticism of auditors can be traced to the audit expectation gap. The audit expectation gap is damaging to the auditing profession as it has negative affects on the worthiness of auditing and the trustworthiness of auditors in the modern society. It is discovered that the lifestyle of an audit expectation distance is because of complicated nature of an audit function; conflicting role of auditors; retrospective analysis of auditors' performance; time lag in giving an answer to changing expectation; and self-regulation process of the auditing vocation. Given such difficult factors that contribute to the lifestyle of the expectation distance, it is neither the auditors nor users who should be blamed for the "audit expectation difference" crisis.


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