Reference no: EM132629208

Problem 1: Explain the audit expectation gap. what causes the gap?

• This occurs when there is a difference between the expectations of assurance providers and financial report users. Some clients believe that an auditor can provide complete assurance or guarantee the future viability of an entity. This is not possible as the auditor can only provide reasonable assurance and an auditor cannot guarantee the future viability of an entity as there are too many variables. For the expectation gap to be reduced the auditor must appropriately perform their duties, comply with auditing standards, and meet the minimum standards of performance they should be expected of an auditor. In addition to this, the education of the public is another way to reduce the expectation gap.

• Causes of the expectation gap from a performance gap include self-interest, auditors receiving an economical benefit, unqualified auditors, miscommunication of auditors etc.

• Causes of the expectation gap from a standard gap include a lack of sufficient standards and existing standards not sufficient enough providing responsibility for detection of fraud and illegal acts.

• Causes of the expectation gap from a reasonableness gap include a misunderstanding of users, performance of an auditor being too high, lack of education regarding an auditor's responsibilities, lack of education for the users of the audit report, etc.