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The auditing profession believes that the increase in litigation and criticism against
the auditors can be attributed to the audit expectation gap. The audit expectation gap
is defined as the difference between what the public expects from an audit and what
the audit profession accepts the audit objective to be. The audit expectation gap is critical
to the auditing profession because the greater the unfulfilled expectations from the
public, the lower is the credibility, earnings potential and prestige associated with the work
of auditors. The objectives of the paper are: to review the definition of audit
expectation gap; uncover the causes of audit expectation gap; review previous studies on the
audit expectation gap; and evaluate the suggested solutions in reducing the audit
expectation gap. It is hoped that such an attempt will provide some valuable insights into the
audit expectation gap.
For decades, the auditing profession has been troubled with high levels of litigations
and accusations. Such problems have reached an unprecedented level as a result of the
spectacular fall of well publicized corporations like Enron and WorldCom (Porter and Gowthorpe,
2004). Porter (1993) argued that the recent increase in criticism of and litigations against
auditors is due to the failure of auditors to meet the society's expectations, which in turn
undermines confidence in the audit function. Barker (2002) asserted that society's confidence in a
group of professional persons is the `heartbeat of that profession'. Hence, if such
confidence is betrayed, the professional function, too, is destroyed, since it becomes
useless (Porter et al., 2005, p. 119).
Conversely, the auditors should not be blamed totally for the present auditing crisis
as pointed out by Power (1993, p. 292), "when innocent parties suffer losses as a
result of fraud or the economic collapses of apparently healthy companies, institutional
processes of blame allocation are set in motion". This is because there have been common
beliefs that the stakeholders of the company should be able to rely on its audited accounts
as a guarantee of its solvency, propriety and business viability. Therefore, if it
transpires, without any warning that the company is in serious financial difficulty, it is widely
believed that the auditors should be made accountable for these financial disasters (Godsell,
1992). In a similar vein, Almer and Brody (2002) asserted that a business failure is always
interpreted as an audit failure in spite of the level of procedures and tests performed by the
auditor. Almer and Brody (2002) argued that an auditor can carry out his audits in accordance
with the generally accepted auditing standards and still be found negligent in not preventing
risks to financial statement users. Hence, it is shown that the nature and objectives of
auditing have been perceived differently by the users and these misperceptions are known as the
`audit expectation gap'.
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