CAT / FIA FAU Syllabus A. Business Environment And Audit Framework - The Expectation Gap - Notes ^{1 / 3}

What causes the 'Expectation Gap'

1. Management misunderstanding their responsibilities

2. Management misunderstanding the scope of the audit

3. Management misunderstand that it is THEIR responsibility to detect fraud

4. Management think that the auditors are liable for any errors

How is the 'Expectation Gap' narrowed?

• In the Audit report

  Responsibilities of management and the auditor;

  Show that audits are performed on a test basis only 

  A statement that the opinion gives reasonable NOT absolute assurance that FS are free from material misstatement

• In the Engagement letter

  Responsibilities of management and the auditor

  The nature, scope and purpose of an audit

There are many disclaimers protecting the auditor and reducing the amount of reliance that users can place on these reports.

However, auditors are exposed to the threat of liability from bad clients and without any protection may not accept many engagements