BRIDGING THE AUDIT EXPECTATION GAP: THE PERCEPTION OF ICAN MEMBERS

ABSTRACT

This research set out to find out the perception of Members of ICAN, an important stakeholder group, on the fresh initiatives at bridging the audit expectation gap problem. Four hypotheses were formulated and tested in the course of this study. A survey design approach was adopted for the study .Out of a population of 23,324, 159 ICAN MEMBERS were randomly selected. The t - test statistic and the Chi square were used to test the hypotheses of the study. The study found out, among others, that 24 out of the 29 methods on offer for bridging the audit expectation gap and articulated in the questionnaire were acceptable to members of ICAN. Consequent upon the findings, it was recommended that ICAN should commence the process of implementing some of the methods within its purview and approved by its members as capable of ameliorating the expectation gap problem.

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

Audit expectation gap is the gap between the role of an auditor as understood by the auditor and the users of financial statements .It is a gap between what the auditor is

doing and what the society expects him to do creating the impression that the statutory objective of audit is not meeting the social needs of the populace. The functions performed by the accounting profession are vital to the growth and stability of the financial market, whether at the global level or at the local level (Egbiki, 2006: 56 - 57).

An audit has been defined as an examination of the financial statements of an enterprise by an independent expert (the auditor) with a view to attesting that such financial report (in his opinion) show a true and fair view of the state of affairs of that enterprise for the period under review. The contribution of the auditor is to provide credibility to information. This means that the information can be believed and that it can be relied upon by outsiders. The outsiders include shareholders and government regulators. Others are creditors and customers. Usually these third parties use the information to make various economic decisions. An example of this decision is whether to invest in the organization. Economic decisions are made under conditions of uncertainty as there is always a risk that the decision maker will select the wrong alternative and incur a significant loss. The credibility added to the information by the auditors actually reduces the decision makers’ risk Therefore auditors reduce information risk, which is the risk that the financial information used to make a decision is materially misstated. The legal position is that an audit is carried out to enable an auditor form an opinion as to the truth and fairness of financial statements presented to him by his client’s management and to report accordingly. The accuracy of a company’s accounts is the sole responsibility of the directors. However, the accounting profession in Nigeria and other climes has been under intense pressure due to rising public expectations.

These expectations have been fuelled largely as a result of demise of some financial institutions in the late 80’s to early 1990’s and very recently for banks that failed to meet the statutory minimum recapitalization to the tune of N25 billion .Yet other banks failed the CBN ” stress” test. In the light of these developments the heat was turned on accountants as members of the public sought whom to blame. The wide spread news of financial scandal and false reporting rife in the collapsed institutions have cast the organizational controls and auditors in very poor light. It has also tended to undermine the confidence of the public in the profession to detect and prevent corporate abuses.

Audit failures have been blamed, partly, on greed on the part of auditors. In defense, auditors have often replied that they are not primarily responsible for detecting frauds and errors. However, shareholders, depositors and most of the general public remain unimpressed as they query the value of a watchdog that cannot bark let alone bite. Most people cannot seem to accept the legally defined status. They would wish to see an auditor’s certificate as an assurance that all that needs to be known about the financial transactions of a company have been disclosed to the auditor. In the same vein, an auditor’s signature should be taken to mean that all is well with the health of the institution concerned and that there has been no fraud or other malfeasance. This, however, is often not the case.

Two components of the audit expectation gap have been identified – communication gap and performance gap. Communication gap has to do with what the auditors think is their role and what the members of the public perceive should be the role of auditors. Performance gap, on the other hand, occurs when public expectations are reasonable but the auditor’s performance does not fulfill them. This means that there is a short fall in the auditor’s performance. (Okafor and Okaro, 2009: 11).

In the past, attempts have been made to bridge the gap by the profession. For example attempts have been made to educate users of the limitations of the modern audit process. As part of the process of educating the user of audited accounts, the modern audit report usually tries to delineate clearly the respective responsibilities of the directors of a company and that of the auditor in respect of audited financial statements. The profession has also tightened the noose on self regulation bringing to book erring members of the profession. The mandatory continuing professional education whereby members of professional accounting bodies are compulsorily required to attend professional seminars has also ensured that members’ skills are updated and horned up.

However, like a sore thumb, the gap appears to have remained as wide as ever. At the local level, the recent scandal in Cadbury Nigeria Plc whereby profits were overstated by a whopping sum of over N13 billion, and the subsequent indictment of the accounting firm of Akintola Williams Delloite for audit failure, has further aggravated the expectation gap conundrum.

The international community has not been spared either. The collapse of the energy giant Enron in the United States of America in 2002 as a result of what was obviously a case of audit failure and wobbly accounting standards has again ignited a global search for tools to at least narrow the expectation gap.

The literature is awash with fresh suggestions and initiatives aimed at tackling the problem of expectation gap. ICAN MEMBERS are a very important stakeholder group in the search for a solution to the expectation gap problem. Their cooperation or lack of it can have a tremendous effect on the resolution or otherwise of the problem. This work is therefore an attempt to document in Nigeria, the perception of ICAN MEMBERS as to the initiatives for bridging the audit expectation gap problem.

1.2 STATEMENT OF RESEARCH PROBLEM

The global search for a solution to the audit expectation gap problem has become strident. The credibility of the accounting profession appears to be at its lowest ebb. In the United States of America, the profession has lost its self regulatory status .In this circumstance, the profession is bestirring itself and the result is a welter of fresh suggestions and initiatives aimed at solving the expectation gap problem. Some of the suggestions appear mundane while some others at best appear controversial. One U.K research study even concluded that expectation gap problem cannot be eliminated. There is the belief that the accountancy profession has resisted change in auditing for so long that it was unlikely to change of its own initiative. In the light of the above, what is the perception of ICAN MEMBERS in Nigeria as to the fresh suggestions and initiatives aimed at addressing the expectation gap problem?

1.3      OBJECTIVES OF STUDY

This study has the general objective of ascertaining the perception of ICAN MEMBERS in Nigeria on the vexed issue of bridging the audit expectation gap. The specific objectives of this study are as follows

1.                  To ascertain the perception of ICAN MEMBERS in Nigeria as to the suggestions for bridging the expectation gap.

2.                  To test the popularity, among ICAN MEMBERS in Nigeria, of the suggestion that convocation of all stakeholders dialogue to negotiate the issues involved in the audit expectation gap problem has become necessary

3.                  To elicit the opinion of ICAN MEMBERS in Nigeria as to whether undue delay by the Accounting profession in Nigeria may lead unwittingly to government legislative interference.

4.                  To enquire into the attitude of ICAN MEMBERS in Nigeria as regards enlisting the co-operation of rival accounting professionals in Nigeria in the search for solution to the audit expectation gap problem.

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Item Type: Project Material  |  Size: 82 pages  |  Chapters: 1-5

Format: MS Word  |  Delivery: Within 30Mins.

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