The difference between the public’s expectations of auditors and their real duties and skills is known as the audit expectations gap, and it exists both in the UK and internationally (Deumes and Carchon 2019; Free and Verona 2018). Several things cause this gap, and different jurisdictions may experience it differently. The audit expectations gap has drawn attention and discussion in the UK (Humphrey and Owen 2018). One reason contributing to this gap is the misconception that auditors are tasked with finding all fraud or mistakes in financial statements (Deumes and Carchon 2019). Although they cannot guarantee the discovery of every case of fraud or error, auditors are primarily responsible for giving reasonable assurance over the absence of substantial misstatements.
The media’s representation of audit failures and the complexity of financial reporting requirements are two variables that impact the audit expectations gap globally (Free and Verona, 2018). The function of an auditor is frequently overstated in the public’s perception, which breeds irrational expectations and criticism of the auditing profession. By improving public awareness of the audit process and outlining the roles and duties of auditors, efforts have been undertaken to close the expectations gap (Deumes and Carchon 2019). To inform stakeholders about the constraints of the audit function, regulatory agencies and professional organizations have released guidelines and launched public awareness campaigns. Additionally, there are continuing talks about prospective changes, such as improved auditor openness and extended reporting obligations (Humphrey and Owen, 2018).
Recent Developments Concerning This Gap
Aiming to close the audit expectations gap and increase public confidence in the auditing profession, recent advancements. These changes, which have taken place domestically and internationally, reflect continued efforts to close the gap and match public expectations with the actual function of auditors. In order to improve the audit profession and close the expectations gap, considerable reforms are required in the UK, according to Sir John Kingman’s Independent Review of the Financial Reporting Council (FRC) in 2018 (Kingman 2018). The study recommended the Audit, Reporting, and Governance Authority (ARGA), a new regulatory agency with expanded authority and responsibility for regulating the audit profession.
Another development is the Audit, Reporting, and Governance (ARG) Act, which the UK government passed in 2020 and included several measures to address the expectations gap (UK Parliament 2020). Some of these measures include increased auditor accountability, enhanced audit reporting transparency, and more powerful enforcement tools. In order to improve audit quality and close the expectations gap, the International Auditing and Assurance Standards Board (IAASB) has been actively working on projects worldwide (IAASB 2021). The IAASB has released updated guidelines for auditing, highlighting the need for auditors to properly explain major audit items in their reports to improve transparency and provide consumers of financial statements with more information.
In addition, the International Ethics Standards Board for Accountants (IESBA) amended its Code of Ethics for Professional Accountants to highlight the value of professional independence and scepticism (IESBA 2021). These revisions are intended to clarify the duties of auditors and allay worries about the expectations gap. These recent events serve as a reminder of the continuous work being done to reduce the audit expectations gap and strengthen the audit profession. Stakeholders work to match public expectations with auditors’ real function and constraints by putting reforms into place, stepping up regulatory monitoring, and encouraging openness and communication.
Recommendations of the Brydon Report for 2019 to Deal with This Gap
Several recommendations were made in the 2019 Brydon Report to close the audit expectations gap and improve the calibre and efficacy of auditing in the UK (Brydon 2019). These ideas have provoked discussions and disputes among stakeholders regarding their viability, possible effect, and consequences for the audit profession. Creating a new corporate auditing profession named “Corporate Auditor” is one of the main proposals made by the Brydon Report (Brydon 2019). By offering a wider and more thorough review of a company’s activities, this plan seeks to allay concerns about the scope and limits of the statutory audit. However, this suggestion has drawn criticism because it would lead to a conflict of interest and an overlap of duties between the proposed Corporate Auditor and the statutory auditor (Peck 2020).
Creating an Audit and Assurance Policy Committee (AAPC) within each organization is another important idea (Brydon 2019). The AAPC would supervise the efficiency of the audit process, have an ongoing and active discussion with auditors, and give clarity on company-specific risks. Although broad support has been for this idea to enhance communication and understanding between auditors and businesses, questions have been expressed about potential conflicts of interest and the added workload it could put on corporate boards (Canning 2019). The Brydon Report also recommended enlarging the audit report’s scope to cover a wider variety of data, such as predictions and the viability of a company’s business model (Brydon 2019). This suggestion aims to increase the value and applicability of audit findings to stakeholders. However, the practicalities and possible liability consequences of providing such forward-looking evaluations in audit reports are up for discussion (Smith 2020). The Brydon Report also suggested ways to strengthen the auditor’s obligation to report, highlighting the necessity for auditors to be more open about their conclusions and to include important audit issues and other pertinent data (Brydon 2019). Although this suggestion has been viewed as a step in the right direction toward improving the audit process, concerns have been expressed regarding the potential information overload and the requirement for clear criteria to guarantee uniformity in reporting (Pratt 2020).
The Brydon Report’s proposals have provoked discussions and arguments among stakeholders and within the audit profession. While some ideas have received positive feedback as potential ways to close the gap between audit expectations and audit quality, others have come under fire and raised questions about their viability, feasibility, and unexpected effects.
References
Brydon D (2019) The Independent Review into the Quality and Effectiveness of Audit: Final Report. Retrieved from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/833858/brydon-review-final-report.pdf
Canning R (2019) Corporate Auditors. The ICAEW Chartered Accountant, October 2019, 38-39.
Deumes R. and Carchon S (2019) The expectations gap: How to close it? Auditing, Trust, and Governance: Developing Regulation in Europe, 7-31.
Free C. and Verona S (2018) The audit expectations gap: A review of the causes, consequences, and remedies. Australian Accounting Review, 28(2), 151-165.
Humphrey C. and Owen D (2018). Audit in the UK The audit expectations gap. In Research Handbook on Auditing (pp. 14-38). Edward Elgar Publishing.
IAASB (International Auditing and Assurance Standards Board) (2021) Key Audit Matters and Other Communications. Retrieved from https://www.iaasb.org/standards-and-supporting-guidance/key-audit-matters-and-other-communications
IESBA (International Ethics Standards Board for Accountants) (2021) International Code of Ethics for Professional Accountants (including International Independence Standards). Retrieved from https://www.ethicsboard.org/
Kingman J. (2018) Independent Review of the Financial Reporting Council. Retrieved from https://www.gov.uk/government/publications/independent-review-of-the-financial-reporting-council-final-report
Peck S (2020) Thoughts on the Corporate Auditor. The Audit & Risk Magazine, January-February 2020, 10-12.
Pratt K (2020) The Brydon Report and the Future of Auditing. International Journal of Market Research, 62(2), 143-146.
Smith K (2020) Brydon Review: Forward-Looking Reporting. Accountancy, November 2020, 62-63.
UK Parliament (2020) Audit, Reporting, and Governance Act 2020. Retrieved from https://www.legislation.gov.uk/ukpga/2020/7/contents/enacted
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