9407210510 - CPE DIRECT INVESTOR VIEWS OF AUDIT ASSURANCE...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CPE DIRECT INVESTOR VIEWS OF AUDIT ASSURANCE: RECENT EVIDENCE OF THE EXPECTATION GAP What do investors expect from an audit? by Marc J. Epstein and Marshall A. Geiger nvestors and financial statement users long have agi'eed on the usefulness of the audit in financial reporting. Over time, however, auditors have been expected to provide as- surance in varying degi-ees and for differ- ent purposes. Differences in perception— especially regarding assurances provid- ed—between users, preparers and auditors have been termed the "expectation gap." This article provides some startling evi- dence of the existence of such a gap in in- vestor perceptions of the assurance provid- ed by an audit. EVOLUTION OF THE AUDIT In the early years of the U.S. auditing pro- fession—from 1850 to the early 1900s—au- ditors primarily were engaged to provide almost absolute assurance against fraud and intentional mismanagement. As corpo- rate America gi'ew and the auditing pro- fession developed, the early 1900s saw a MARC J. KPSTEIN. PhD. is a vu^iting professor of business admi.nistration at the Graduate School of Business Administration. Harvard University, Cam- bridge, Massachusetts. He is a member of the Ameri- can Accounting Association and the Institute of Man- agement Accountantn. MARSHALL A. GEIGER. CPA, PhD, is associate, professor of accountuig at the University of Riiode Inland, Kingston. He is a mem- ben- of the Awsrican Institute of CPAs, the Pe7insyliKt- nia Institute of CPAs ami tiie AAA. shift away from verifying all transactions and amounts for purposes of fraud detec- tion to determining fairness in financial statement reporting. This shift partly was a response to the burgeoning volume of business activity (making fraud detection less feasible) and the appearance and in- creased imi)ortance of a new business play- er—the shareholder. Corporate sharehold- ers and other outside parties became in- creasingly reliant on auditors to attest to management-provided information, neces- sitating a shift in the primary audit objec- tive to providing assurance on externally reported financial information. Current practice has not strayed far from that of early corporate America, with the primary audit focus on financial state- ment reasonableness. Current standards still reflect the matenal misstatement fo- cus and increasingly have relied on the con- cept of "reasonable assurance" in de})icting the level of reliance to be placed on audited information. One need only skim current auditing standards to find pervasive evi- dence of the reasonable assurance con- cept's use as the foundation for reliance on audited financial statements. Statement on Auditing Standards no. BI, Evidential Matter, SAS no. 39, Audit Sampling, and SAS no. 53, The Auditor's Respoiisibilitif to Detect and Report Errors and Irregu- 60 JOURNAL OF ACCOUNTANCY, JANUARY 1994
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
larities, all I'ely on the concept of reason- able assurance.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern