25792888 - The Impact of the Pubhc's Expectations of...

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of Auditors on Audit Quality and Auditing Standards Compliance* PING ZHANG, University of Toronto I. Introduction This study analyzes the impact of the public's expectatiotis of auditors on audit quality. Public expectations, in this context, are societal perceptions about the duties and responsibilities of auditors. The audit expectations gap as defined by the extant literature is essentially the difference between the public's expectations and auditors' performance.' The evidence for the existence of the gap is extensively documented in the literature (e.g. . Porter 1993; Anderson, Lowe, and Reckers 1993; Epstein and Geiger 1994; and Lowe 1994). The accounting profession believes that the existence of this gap is detrimental to the profession because it results in an excessive number of lawsuits against 1992). The expectations gap is conspicuous in legal decisions because litigants often appear to apply the concept that audits are comprehensive checks on corpora- tions' financial activities (Kaplan 1987). Compliance with auditing standards may not be sufficient to protect auditors from liability (Schwartz 1998).^ In an attempt to eliminate the audit expectations gap. the accounting profes- sion has identified causes for the existence of the gap and adopted expectations gap auditing standards set out by the American Institute of Certified Public Accoun- tants ([AICPA] 1988a. b, c, d, 1997).^ These standards explicitly recognize higher levels of auditor responsibility (Statement on Auditing Standards \SA$\ Nos. 53, 54, 59, and 82) and attempt to better communicate to the public the true role of auditors (SAS No. 58). Notwithstanding these efforts, the audit expectations gap remains (Wyatt 1997). Brougham and Parker (1991) lind no difference between liability assessments based on old and new forms of the audit report, suggesting that the changes mandated by SAS No. 58 have limited usefulness. Epstein and Geiger (1994) find that a significant number of investors still want absolute assurance that audited financial .statements are free of ad types of material mis- statements. They suggest that the views of investors should serve as a reminder to the profession that auditing standards do not dictate public opinion on auditors' Accepted by Gord Richardson, The author would like to thank Jeff Callen, Bryan Church, Ole- Krisiian Hope. Gord Richardson. Sean Robb, Lynda Thoman. and seminar participants at the Uni- versity of Toronto, the Georgia Institute of Technology, and the 2004 Canadian Academic Accounting Association Conference for their comments. Contemporary Accounting Research
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This note was uploaded on 03/20/2012 for the course ACCOUNTING 20111:010: taught by Professor Marjorieyuschak during the Spring '10 term at Rutgers.

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25792888 - The Impact of the Pubhc's Expectations of...

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