Audit expectation gap is an important issue which is discussed mostly as part of accounting revolution in the modern era. The audit expectation gap is the difference between beliefs of financial statement users and performance of accountants and auditors who prepare audits. Experts view that this gap can be minimized only if the auditors take responsibility of the certification of financial statements, and further gauge the early warnings of business fraud. This study concludes that audit expectation gap results due to the deficiencies of auditor, auditor independence, audit process, regulatory mechanism and the society at large.

After industrial revolution, large-Scale companies were established in the middle of 18^th century. The advent of professional management, made the development of professional manager who were separated from investors and auditor, who lent credibility to managements financial support. This changed the practice of appointing a person to perform audit functions among the stockholders and resulted in the rise of the auditing firms.

The term `audit' is derived from the Latin word `audire,' which means `to hear' and auditor literally means `hearer'. The function of the auditor was declaring that the accounts kept by the management and the financial statements prepared by them were `true and correct' and it provided an assurance against fraud and mismanagement. The function by the auditor was gradually transformed from verifying all transactions to verify sample transactions and this was practiced because of the burgeoning volume of business activity. This functional shift in audit also caused a paradigm shift in audit role from `true and correct view' to `true and fair view' with a change in audit opinion from `complete assurance' to `reasonable assurance'. In this background of evolution of audit, the AAA (1973) defines auditing as "a systematic process of objectively gathering and evaluating evidences related to assertions about economic actions and events in which the the individual or organization making the assertions has been engaged, to ascertain the degree of correspondence between those assertions and established criteria, and communicating the results to users of the reports in which the assertions are made."

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