MPRA_paper_232 - MP A R Munich Personal RePEc Archive...

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Munich Personal RePEc Archive Eliminating the Audit Expectations Gap : Myth or Reality? Ojo, Marianne February 2006 Online at http://mpra.ub.uni-muenchen.de/232/ MPRA Paper No. 232, posted 07. November 2007 / 00:53
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ELIMINATING THE AUDIT EXPECTATIONS GAP : REALITY OR MYTH ? Marianne Ojo ( marianneojo@hotmail.com ) Oxford Brookes University 1 ABSTRACT The audit expectations gap is of serious concern to the UK accounting profession with the Department of Trade and Industry proposing a new framework for independent regulation of the accounting profession. 2 However the new Accounting Foundation has had its role placed under review following the Enron collapse and introduction of the Sarbanes-Oxley Act 2002. 3 This resulted in responsibility for independent regulation of the accounting profession being transferred to the reconstituted Financial Reporting Council. 4 High profile failure of financial services firms, commencing with the secondary banking crisis in the 1970s, followed by collapses of banks such as Johnson Matthey Bankers ( JMB), Bank of Credit and Commerce International (BCCI) and Barings, building societies such as Grays and insurers such as the recent problems at Equitable Life and Independent Insurance have given rise to further debate on the audit expectations gap. The debate surrounding the “expectations gap” often revolves around whether such a gap can be eliminated. Sikka, Puxty, Cooper and Wilmott argue that within a social context, the expectations gap will be difficult to eliminate due to social conflict and the fact that the meaning of social practices is always subject to challenges. 5 It will however, be argued that even though the whole component definition of an audit may be subject to changes and challenges and therefore cannot be objective, elements within the definition of an audit and in particular, the fraud and error detection role of an audit can be relatively objective. A) INTRODUCTION The Expectations Gap If a survey were carried out within the general public and members of the public were asked to give a “true” or “false” answer to the statement : “The role of the auditor is to detect fraud and error in financial statements”, most people would say true. In Re Kingston Cotton Mills ( No 2) [1896] 6 , LJ Lopes of the Appeal Court stated that the auditor was a watchdog but not a bloodhound. This remark underlines the fact that the auditor's primary role is not the detection of fraud. The probable lack of clarity between users of financial statements, the general public and auditors as relating to the proper definition of the role and 1 School of Social Sciences and Law. Usual disclaimers apply. 2 P Dewing and P O Russell The Role of Auditors, Reporting Accountants and Skilled Persons in UK Financial Services Supervision Institute of Chartered Accountants of Scotland (2005) 3 3 Ibid pp 2-3 4 Ibid p 3 5 P Sikka A Puxty H Willmott and C Cooper ' The Impossibility of Eliminating the Expectations Gap : Some
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MPRA_paper_232 - MP A R Munich Personal RePEc Archive...

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