NARROWING THE EXPECTATION GAP IN AUDITING: THE ROLE OF THE AUDITING PROFESSION

ABSTRACT

Accounting and auditing are critical components of any economic enterprise as they play an important role in contributing to the effectiveness and efficient functioning of business operations, the capital markets, and the economy by adding credibility to financial statements (Lee, Azham and Kandasamy, 2008). While accounting keeps track of transactions as basis for providing information about the enterprise through financial reporting to users of the information, audit expresses an opinion on the financial statements whether it presents a true and fair view of the enterprise. The auditing profession believes that the widespread criticism and litigation against auditors may be due to auditors not meeting the Public’s expectations of them on the state of affairs of the companies audited. Lueng, Coram, Cooper, Cosserat and Gill (2004) posit that for more than 30 years or so, the auditor played an “enhancing role” by improving the credibility of the financial information. Thus, auditors occupy a prime place in bridging the expectation gap between management and the users of the published financial reports. Many users do not seem to understand the nature of the attest function, especially in the context of an unqualified opinion as they believe that an unqualified opinion means foolproof financial reporting. Some feel that the auditor should not only give an opinion, but also interpret the financial statements to enable users evaluate whether to invest in the company. These expectations create a gap between auditors and users expectation of the audit function. Moreover, users place the responsibility for narrowing the gap on auditors and others involved in preparing the financial statements. This study intends to explore the role of the auditing profession in narrowing the audit expectation gap if not eliminating it. The objectives of this study were to ascertain whether the public is conversant with the legislative, regulatory and professional pronouncements on the responsibility of the auditors, and whether the duties and responsibilities are such that the auditors should reasonably be expected to perform.