Audit Expectation Gap
Definition
The difference between what auditing standards require auditors to do and what the public, investors, or regulators believe auditors are responsible for. In the fraud context, the gap is the common misbelief that a clean audit opinion certifies the absence of fraud.
- Definition
- Gap between auditing standards and public expectations of auditors
- Common misbelief
- A clean audit opinion certifies no fraud exists
- Affected parties
- Public, investors, regulators
- Field
- Audit standards and fraud detection responsibility
Common questions
What do auditing standards actually require regarding fraud, if not a guarantee of no fraud?+
Standards generally require auditors to plan and perform the audit to obtain reasonable, not absolute, assurance that financial statements are free of material misstatement, whether caused by fraud or error, using risk-based procedures rather than an exhaustive search for every fraudulent act.
Why has the audit expectation gap remained persistent despite standard-setters addressing it?+
High-profile corporate frauds that surface after a clean audit opinion reinforce public belief that the auditor should have caught them, even when the fraud involved concealment specifically designed to evade normal audit procedures, so the gap tends to recur after each major scandal.
Related terms
- Fraudulent Financial Reporting
- One of the two ISA 240 fraud categories. It involves intentional misstatement or omission in financial statements to deceive users: overstating revenues,...
- ISA 240
- International Standard on Auditing 240, 'The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements,' issued by the IAASB. Sets...
- Material Misstatement Due to Fraud
- A misstatement in the financial statements caused by intentional act (fraud rather than error) that is large enough, individually or collectively, to...
- Misappropriation of Assets
- The second ISA 240 fraud category. It involves theft or misuse of an entity's assets by employees or management: cash skimming, expense...
- Professional Skepticism
- An attitude requiring the auditor to question information, remain alert to conditions that may indicate misstatement, and critically assess audit evidence rather...