For example, proper planning, appropriate understanding of entity to design further audit procedures, maintaining skeptic attitude, reducing sampling risk to appropriate level etc. The reasons an auditor may fail to identify red flags during an audit include the following: Auditors face similar challenges when it comes to detecting fraud in an audit.
Difference in expectation can arise on the performance i. The resulting investigation or financial statement restatement creates negative consequences for the company and its employees.
If efforts are invested in these areas then expectations can be bridged to great extent. Although its about expectations but still its scope and meanings have been defined in number of ways.
This area is still developing and audit as a profession is facing great challenges in this regard. In short it is all about what auditor expects and what others expects from the auditor.
They are often displeased when fraud goes undetected and is later uncovered by a tip or accident.
Passengers do not subscribe to this same belief, so when their flights are delayed, this exposes an expectation gap. Although auditor and management is required to produce financial statements in a way that are easy to understand but users are also expected to have certain degree of relevant knowledge on how to use and interpret financial statements.
When it comes to fraud, users require auditor to act as investigator and auditor is expected to unearth even the most sophisticated fraud events.
It can also refer to difference in understanding regarding nature of audit engagement i. Expectation gap in related to audit can also be explained as the difference between expectation of user and auditor himself on the responsibilities of the auditor.
For last few years this gap has been debated number of times at different forums and stakeholders have agreed on reducing this gap as most of the time it has been bone of contention between client, auditor and other users of financial statements.
Auditor must not rule out everything on the basis of lack of knowledge on part of users.
An auditor may possess the skills to detect fraud, but might choose to take shortcuts or disregard obvious signs of potential fraud. Auditor is required to reduce audit risk to an acceptably low level to attain reasonable assurance. Expectation gap can also be explained as the difference between the effectiveness of audit engagement what users believe and what auditor believes.
Zikmund JUNE - Auditing is increasingly difficult and challenging, with new rules and regulations encouraging, if not requiring, auditors to enhance their efforts to detect fraud during an audit.
Both scenarios will broaden the expectation gap. More important, they do not always take the appropriate steps to uncover fraud once a red flag surfaces during an audit. Or, an auditor might use a variety of techniques, but lack the experience to effectively uncover red flags.
In many instances, they are not sure how much effort must be made to uncover red flags for fraud. Auditor is already providing less than absolute assurance so he must not leave any effort undone to maintain reasonable level of assurance by complying with the requirements of relevant auditing standards.
This can be different in the eyes of auditor and in the eyes of users of financial statements and this creates expectation gap.
And this is not only a lacking on part of users of financial statements but also the auditor sometimes. An auditor must develop the requisite skills to detect fraud and obtain sufficient knowledge of the rules and regulations in order to better understand what is required during an audit. Clients, judges, shareholders, and other parties, however, expect auditors to take steps to detect fraud during the audit.
But what is reasonable? Although auditor works diligently but it does not always mean if judgment is wrong then auditor is guilty of ignorance rather it will be assessed based on what auditor could possibly do and what he actually did.
For example, the airline industry now expects a significant portion of flights to be delayed during the busy summer months. Financial statements are not for everyone to read and act upon.What is Expectation gap in auditing? Expectation gap in related to audit can also be explained as the Auditor is required to reduce audit risk to an.
Can The Expectation Gap Be Reduced?The aim of this essay is determine the existence of the expectation gap in auditing and the effectiveness of t. The issue of “audit expectation gap (AEG)” has been very significant to the accounting profession since mid s and continues to be debated u.
Eliminating the Audit Expectations Gap: which could be taken to reduce the expectations gap Study of the Audit Expectation – Performance Gap'. Forensic Audit Procedures. Auditing is increasingly difficult and challenging, with new rules and regulations encouraging, if not requiring, auditors to enhance their efforts to detect fraud.
Education Center. Education Center Reducing the Expectation Gap Forensic Audit Procedures The challenge to reduce the expectation gap stands before all.Download