What is Expectation Gap in Auditing?

Auditors examine a company’s financial statements and record to form an opinion about them. For internal auditors, it may also include assessing the company’s internal controls. Both external and internal auditors gather evidence during this process. Based on this evidence, they can form an opinion about their related audit area. Once they do so, they can present their opinion or findings in a report.

Auditors follow a set of standards provided by an auditing body. While both external and internal audits have varying standards, they are critical in the process. These standards define the procedures that auditors must use. However, it depends on the auditor on how they do so. Therefore, apart from the auditor, others may not know how they work. However, it may cause an expectation gap.

What is the Expectation Gap in Auditing?

The expectation gap in auditing is a term used to describe the difference between the audit process and others’ perceptions of it. In other words, it is the variance between people’s expectations of an audit process and the actual process. Most of the time, these expectations will not be the same as the actual audit process. Therefore, there stays a gap between them, known as the expectation gap.

The expectation gap can come from several sources. For example, when a company’s management doesn’t understand how auditing works, there will be an expectation gap. However, these cases are rare since the audit process is streamlined. In most cases, the expectation gap arises from people’s wishes of how the audit process should be.

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How Does the Expectation Gap Work?

An expectation gap may exist in various professions. Usually, what people want the process to be vs how it actually differs significantly. This difference creates a gap between their expectations and the process. The expectation gap in auditing is similar. When a user’s perception of the audit process differs from actuality, it creates an expectation gap.

The expectation gap doesn’t only exist due to a lack of knowledge. As mentioned, there are several causes of such gaps existing. For example, the difference between users’ expectations of the performance level varies from the actual, creating an expectation gap. It also describes the disagreement between auditors and users in some audit matters.

What are the Types of Expectation Gap in Auditing?

The expectation gap in auditing stems from three differences. These include knowledge, evolution, and performance gaps. All three differ from each other. However, when even one of these exists, an expectation gap will also arise. A description of what these gaps are is as below.

Knowledge Gap

The knowledge gap is self-explanatory. This gap exists when the public lacks knowledge of the audit process. Therefore, their perception of what auditors do may differ from what auditors actually do. This gap also contributes to the others. The knowledge gap can decrease when the public understands how the auditing process works.

Evolution Gap

The evolution gap stems from a difference between two things. It comes from a variance in what auditors are supposed to do with what the public wants them to do. The primary source of the evolution gap is the public’s wants. The evolution gap also relates to the knowledge gap. For auditors, understand the evolution gap when the knowledge gap is wide can be challenging.

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Performance Gap

The performance gap lies between knowledge and evolution gaps. Performance gap exists when what auditors do differs from what auditors are supposed to do. In other words, it occurs when the public expects the auditors to do something. Usually, these expectations are valid. However, auditors fail to fulfill those expectations. It is the basic premise of the performance gap.

How Do Auditors Contribute to the Expectation Gap?

While various auditing standards exist for regulating the audit process, there are still some areas which they don’t cover. In these areas, auditors have to use their professional judgment. Similarly, due to the inherent limitations of audit engagements, auditors have to use some techniques to streamline the process. For example, auditors may use sampling to form an opinion about a population by testing some items.

These limitations can contribute to the expectation gap in auditing. Auditors also state that they will provide reasonable or limited assurance. Some people may confuse this with absolute assurance, which is not possible for various reasons. In all of these ways, auditors also contribute to the expectation gap in auditing.

How Can Auditors Manage the Expectation Gap?

The expectation gap is one of the prominent issues that auditors face during their audit engagements. Auditors must consider the knowledge and performance expectation gaps. Both of these are manageable by educating the public about the auditor’s responsibilities. Similarly, they can also clarify their roles in the process and use the applicable standards for reference.

The auditing standards also help auditors with this process. For example, auditing standards require auditors to write an engagement letter. With this letter, auditors can define their responsibilities, so it is easier to understand. In short, the expectation gap is manageable. Auditors need to be communicative with the public to help them understand the process better.

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The expectation gap in auditing represents the difference between the audit process and the public’s perception. There are three types of expectation gap, including knowledge, evolution, and performance expectation gaps. Similarly, auditors contribute to these gaps in several ways. However, the expectation gap is still manageable through proper communication.

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