2222-8822-1-PB - Journal of Applied Business Research...

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Journal of Applied Business Research Volume 20, Number 4 25 Auditor Perceptions Of SAS 99: Do Two Expectation Gaps Still Exist? Linda B. Specht, (E-mail: lspecht@trinity.edu), Trinity University Petrea Sandlin, (E-mail: psandlin@trinity.edu), Trinity University Abstract In 1988, the Auditing Standards Board released nine standards intended to narrow the previously identified “expectation gap”—a gap between the expectations of financial statement users and certified public accountants (“Expectation Gap I”). A 1992 study of auditor perceptions of two of those standards dealing with errors, irregularities, and illegal acts of clients, revealed that there existed a second expectation gap, one between the standard setters and practicing CPAs (“Expectation Gap II”). Since then, the ASB has released two successor statements intended to address the issue of auditors’ responsibility to consider fraud in a financial statement audit. This study examines auditor perceptions of the more recent pronouncement and reveals general skepticism among respondents regarding its effectiveness in promoting Congressional and public confidence in the auditing profession; i.e., little confidence that it will serve to reduce Expectation Gap I. It also reveals the continued existence of Expectation Gap II. Introduction In August 2000, the Panel on Audit Effectiveness (referred to hereafter as “the Panel”) issued its “Report and Recommendations” regarding financial statement audits [the Panel (2000)]. The Panel had been given its mandate in 1998 by the Public Oversight Board (POB) 1 in response to the Securities and Exchange Commission’s (SEC) concerns over the effectiveness of financial statement audits of publicly held companies and the reliability of financial statements. Specifically, the Panel reviewed and evaluated “the way independent audits are performed and assessed the effects of recent trends in auditing on the public interest” [the Panel (2000)]. On January 20, 2002, on the heels of the Enron collapse and the SEC’s renewed scrutiny of the accounting profession, the POB announced that it would terminate its existence. Meanwhile, the auditing profession, through efforts of the American Institute of CPAs (AICPA), had begun its response to the Panel’s report by launching a number of projects, including the formation of various task forces and the issuance of several new standards in exposure draft form by the Auditing Standards Board (ASB). One of the exposure drafts specifically addressed the auditor’s responsibility for considering fraud in a financial statement audit. This study was begun shortly after the issuance of the ASB’s Exposure Draft, “Proposed Statement on Auditing Standards: Consideration of Fraud in a Financial Statement Audit” [ASB (Feb. 2002)] (the “Proposed Fraud Statement”). The objectives of this study are to determine (1) whether auditors believe the implementation of the Proposed Fraud Statement will reduce the much publicized expectation gap between public expectations and
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2222-8822-1-PB - Journal of Applied Business Research...

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