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Audit Expectations Gap

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Introduction and breakdown of the theory

Even though there are differences in the definition of the audit expectation gap, one can argue that the universal understanding of the expectation gap is that there are differences in what a user expects auditors to be responsible for in their work in terms of scope and performance and what auditors themselves believe their professional responsibilities are. I base this observation on Liggio’s first mention of the term in 1974 that described the gap as different expectations when it comes to auditors’ performance and multiple adaptations of the term throughout the last couple of decades (Commission on Auditors’ Responsibilities, 1978; Monroe and Woodliff (1993); Jennings et al. (1993); Porter (1993)). Many of these authors’ additions have addressed how the role of an auditor has been perceived by the public as well as what the audit profession entails.

Porter’s (1993) empirical study introduces the reasonableness gap and the performance gap to further break down and explain the expectation gap issue. The reasonableness gap describes society’s irrational demands and expectations toward auditors whereas the performance gap focuses on shortcomings in auditor’s performance. The performance gap can be deconstructed further to distinguish between deficient audit standards and regulations and deficient performance shown by a lack of professional competence by individual auditors.

Reasonableness gap

The reasonableness gap describes how society and people interested in the financial audit expect more of auditors than they can give in practical terms. Stakeholder must understand the relationship between costs of the audit and benefits and how increased audit scope inevitably leads to higher audit fees. When talking about audit stakeholders we must differentiate between powerful, influential stakeholders and weak, less influential stakeholders (Gray & Manson). Powerful stakeholders have economic and/or political power and can use it to influence the direction of a company. This would include institutional shareholders, company directors, lenders but also outside bodies including international as well as national regulators and the financial press and media. One can argue that their expectations toward the financial audit differ greatly from an outsider, as their professions suggest that they are familiar with auditing procedures.

Campbell & Mitchell’s 1988 study on the expectations gap and going-concern uncertainties reveals that both bankers auditors were of the opinion that the role of auditors includes providing “early warning signals” and it is argued that opinions on going concern issues between auditors and stakeholders were generally similar. The authors conclude that the expectations gap on going concern issues therefore should not be difficult to eliminate. I believe that opinions on the role of the audit in this case were similar, as Campbell & Mitchell were comparing opinions of auditors to bankers, a profession expected to be well informed about audit procedures. This ties in well with my previous point about the different expectations of professionals and a public outsider, however, one could argue that this result lacks generalisability, as the majority of stakeholders cannot be expected to be as sophisticated as bankers in this matter. Furthermore, all stakeholders have access to published financial reports and financial statements, but more powerful stakeholders can potentially gain access to more information than smaller stakeholders. Therefore, I do not agree with the statement that the expectations gap on going concern issues should be easy to eliminate, especially regarding the concept of going concern, which most people are perhaps not familiar with.

It seems logical to assume that high level management possesses great power over a company, but I want to elaborate on important outside players. These individuals are not directly associated with a company but have influence, especially over the public expectations of the audit. Sikka et al (1998) argue that auditors duties expand under regulatory (state) and internal (academics & press) pressures. Academics or the media have influence on the public view of the audit profession and their expectations of the audit process, as for the majority of people they are the only form of contact with auditing. Humphrey et al. (1993) argue that the public will never be educated enough to accept that the audit standards are anything but deficient, but I believe it is the authors’ responsibility to open up public discussions to reduce the expectations of, in this regard, uneducated members of society. I will discuss this opinion in greater detail.

Performance gap

The performance gap describes the shortcomings of audit practices when compared to what can reasonably be expected from financial auditors. This can be further split into two main contributors, deficient standards, and deficient performance (Figure 1). The idea of deficient standards describes the difference between what the role of an auditor can realistically be expected to fulfil, but the law does not require them to whereas deficient performance occurs when auditors fail to comply with professional audit standards. This is often caused by a lack of care in the audit process and/or insufficient knowledge and experience. Sikka et al. (1998) say that audit standards are not strict enough, which ties in with critic’s opinion that in order to give a fair and true view of a company, audit reports must be free of fraudulent misstatements. Furthermore, Humphrey et al. (1992) demanded that auditors “must accept their role as fraud hunters, as the public expects a fair and true view of the company”. I agree with the point that a financial report that contains misstatement, fraudulent or by mistake, does not present a fair and true view of the company. However, paragraph 5 of the ISA-240 states that even if a financial audit is carried out in full accordance with audit standards, there is an unavoidable risk that misstatements may not be detected (Gray & Manson). If auditors would introduce procedures to increase likelihood to detect misstatements and fraudulent activities, the cost of the audit would inevitably rise, and cost/benefits discussion must be had.

Recommendations to potentially reduce deficient performance and deficient standards include the introduction of post qualification experience or even “force competence and audit independence from practitioners” by withdrawing practising certificates (Gray & Manson). Another possibility is the Increased monitoring of auditor’s performance, which links back to Porter’s view on weak audit standards. This could ultimately be punished with disciplinary procedures of accounting bodies following investigation of audit failures (Gray & Manson). Regulatory and informal pressure would ultimately lead to an extension of the duties and liabilities of auditors. Critics argue that a company can only be presented in a fair and true way if there are no misstatements or fraudulent activities.

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Review of the literature on the audit expectations gap

They argue that businesses are becoming increasingly complex and advances in audit technology have not caught up to this rising challenge (Humphrey et al. 1992). Porter (1993) argues that societies expectations can only be reasonable if they are compatible with the auditor’s role in society at the point where audit procedures are beneficial to perform from a cost point of view. Furthermore, Sikka et al. argue that regulatory bodies are insufficiently independent of their own community as they shy from introducing audit (and accounting) standards that would significantly add to the liabilities of their audit members. Porter (2001) believes that the expectation gap will inevitably never full close and cases like the Enron scandal contribute to widening it further. In 2008, Porter’s research on the development of the expectation gap in the UK and New Zealand in a 10 year time span has proven that the expectations gap is ever changing and that due to a) better monitoring of audit performance and b) wide spread discussions about corporate governance and financial affairs in the UK the gap has decreased from 1998-2008.

Even though researchers seem sceptical, empirical studies have shown that there is potential to mitigate the extent of the expectations gap. The financial audit is dynamic and changing through advanced technology and increasing public expectations, can we ever get close to eliminating the expectations gap and if so, what are the next steps?

The issue of advances in the profession and changing public expectations – an endless cycle?

Having critically evaluated expectations gap theory and following the review of the literature I have identified the issue of a potentially endless cycle of an increasing expectations gap (Figure 2). Millichamp & Taylor discuss this as a current issue, and how financial report users “want more disclosure from companies, in particular nonfinancial information and forward-looking information”, and how the “role of the audit extends from a purely financial certification” (Chapter 32, current issues, p.488). This opens up discussions on how we must deal with increasing expectations if we want to reduce the gap in the future.

Technological advances and increased expectations

Crucial to this discussion is the cost – benefits relationship associated with the procedures undertaken by financial auditors. One can argue that technological advances will reach the point where they enable auditors to validate every transaction of a company. This will have a considerable impact on the cost – benefit relationship of the financial audit. A complete check of a company’s transactions will now be a realistic procedure to include in the financial audit without astronomical increases in audit fees, as this will be automated enabled by technology. This results in increasing expectations of auditors because society recognises technological changes and realises that technology has allowed this to become the new norm. Auditors will be required to have checked a company’s full register of transactions and complete financial statements as part of the audit report.

The role of academics and the media – a potential dilemma?

The review of the literature has revealed that academics and researchers show strong interest in increased monitoring of financial auditors and defending stakeholders right to a fair and true view of a company, regardless of their economic or political power. However, because of their influence on regulatory bodies as well as society, I conclude that academics and the media must lead the change for increased public awareness and understanding of the audit profession. The public’s perception of the auditing process is shaped by academic papers and news articles, especially following a major corporate scandal.


I concluded that academics and the media actively help the enforcement of stricter audit standards and performance monitoring to decrease the performance gap, however, they also play an integral part in the attempt to reduce the reasonableness gap, and ultimately the expectations gap.

Going concern issues (Concerning deficient performance & deficient standards): -auditors must decide if going concern period selected by directors is appropriate and decide if the financial information used to assess going concern issues is appropriate and satisfactory. Even though directors have disclosed going concern statues of the company, auditors must form an independent view. Auditors must therefore consider a wide range of factors to determine if going concern conclusions are valid.


  1. Adapted from 2020 Audit lecture on Audit Theory and Ethics by Samantha Bell (Gray & Manson, 7th, Chapter 2, Fig 2.2 p.49)
  2. CAMPBELL, J.E. and MUTCHLER, J.F., 1988. The ‘Expectations Gap’ And Going-Concern Uncertainties. Accounting Horizons, 2(1), pp. 42.

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Audit Expectations Gap. (2022, February 17). Edubirdie. Retrieved November 27, 2022, from
“Audit Expectations Gap.” Edubirdie, 17 Feb. 2022,
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