The Audit Expectation Gap Descriptive Essay by Hans

A descriptive essay discussing the audit expectation gap in the wake of accounting scandals.
# 149883 | 3,726 words | 13 sources | APA | 2010 | GB
Published on Jan 09, 2012 in Accounting (Theory) , Accounting (General)


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Description:

This paper analyses the issue of the audit expectation gap and deals with a wide range of issues including the expectations of auditors on the behalf of companies and shareholders. The paper also addresses the evolving role of auditors and the problems associated with transparency and self regulation. A majority of the paper's content is set against the backdrop of many high profile scandals and accounting failures such as the Enron scandal. In the conclusion, the writer addresses the concept of an auditor in challenging a business model to represent the conflict of interest between independence and auditing duties and responsibilities.

Outline:
The Basics of Auditing
The Role of the Auditor
The Evolving Role of the Audit Firm
Independence as Brand
Transparency and Self-Regulation
Duty of Care and Industry Problems
Business Risk
Enron and Other High-profile Scandals
Conclusions

From the Paper:

"As with all corporate legal entities there is a principal agent relationship, the principal being the owner of the business who is in absence and the agent who acts as the manager. As such the principal provides capital and provides a contingent reward to the agent. In return the agent is accountable to the principal for maximising long term profitability. Specifically from the financial auditing perspective, the principal has a responsibility to provide fair and accurate financial report to the principal. Eilidsen et al (2010) argues that information asymmetry and a conflict of interests leads to the possibility of a risk of misinformation being transmitted between agent and principal.
"In order to ensure that such misinformation does not ensue, an auditor is hired on the behalf of the agent who undertakes to assess the financial statements of a company and report on the validity of such statements with regard to the quality of information provided and to consider whether or not such statements have been prepared in accordance with the relevant laws and accounting standards. Despite the face that the auditor may be thus seen as working for the principal, the fact remains that in reality whilst the principal has the right to reject the choice of auditor the auditor or audit company will be chosen by the agent. As thus this may be seen as creating the first conflict of interest and the creation of the first key expectation which is that despite bringing hired by the agent, the auditor will work in an independent fashion which is free from bias and gives a report which is in the best interest of reducing the informational risk of the principal and others who wish to use the companies financial statements."

Sample of Sources Used:

  • Accoutnancy. 2002. Top 60 league table. Accountancy. July. pp 16-7.
  • Accountancy. 1995. Top 50 UK firms. Accountancy. July.
  • Accountancy. 1990. Top 40 firms. Accountancy. July.
  • Canning, M, O'Dwyer, B. 2001. Professional accounting bodies' disciplinary procedures: accountable, transparent and in the public interest? The European accounting review. 2001. 10:4, pp 725-749.
  • Citron, D, B. 2003. The UK's framework approach to auditor independence and commercialization of the accounting profession. Accounting, auditing and accountability journal. Vol.16. No.2. 2003. pp 244-274.

Cite this Descriptive Essay:

APA Format

The Audit Expectation Gap (2012, January 09) Retrieved January 27, 2021, from https://www.academon.com/descriptive-essay/the-audit-expectation-gap-149883/

MLA Format

"The Audit Expectation Gap" 09 January 2012. Web. 27 January. 2021. <https://www.academon.com/descriptive-essay/the-audit-expectation-gap-149883/>

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