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Audit Quality: Insights from the Academic Literature

2013, AUDITING: A Journal of Practice & Theory

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The purpose of this paper is to review the research literature dealing with output indicators that indicate the level of audit quality: Auditor's report, bankruptcy, client satisfaction, auditor litigation and expectation-gap. This paper reviews a total of 89 papers authored post-2012, which relates to output indicators of audit quality, using a Systematic Literature Review. For each study, we demonstrated the methodology used (Archival/ Experimental), the sample chosen and the main results. Based on our findings, studies on the audit report state that it should contain more information and detail. For bankruptcy, researchers find that going concern opinion is an essential element in predicting bankruptcy, and that the auditor becomes more conservative after a bankruptcy. Through experimental studies on client-satisfaction studies, researchers have ruled on the elements that can satisfy clients on the audit work. The research on auditor litigation state that auditors being sued provide higher audit quality because they have more wealth at risk in case of litigation. The common cause of audit expectation-gap is the misperception of the auditors' responsibility to detect and prevent fraud. We contribute to the literature in the following aspects. First, we propose an audit quality framework that includes all the factors indicating the level of the external audit’s quality (Auditor-related indicators; Audit-process indicators; Output indicators). Second, we present a review on the output indicators of audit quality (auditor’s report, bankruptcy, client satisfaction, auditor litigation and expectation-gap). Thirdly, we draw on the results of previous literature and provide suggestions for future research.

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• Published: 23 April 2020

Audit expectation gap: an empirical analysis

• Paul Olojede 1 ,
• Olayinka Erin 1 ,
• Osariemen Asiriuwa 1 &
• Momoh Usman 2  

Future Business Journal volume  6 , Article number:  10 ( 2020 ) Cite this article

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13 Citations

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The financial debacles that occurred in the companies like Enron, WorldCom, and Xerox in the USA, Lehman Brothers, Polly Peck in the UK and African Petroleum Plc., Cadbury Plc., in Nigeria had created public distrust with the auditors. The era when the auditor will say ‘trust me’ and that being accepted is over. Now, they must earn the public trust. This study provides an empirical analysis of the scope and nature of audit expectation gap in Nigeria. We used a descriptive and survey research design to achieve the objective of the study. We also collected data through primary source, using structured questionnaire. The study used Mann–Whitney U test and Kolmogorov–Smirnov Z test for the analysis of data and test of normality of distribution, respectively. The results confirmed that audit expectation gap exists in Nigeria, and the new auditor’s report did not have any serious impact in reducing the gap. From the outcome of this study, the audit expectation gap primarily arose from the unreasonable expectation of the users due to their lack of understanding of the roles of auditors. We recommend the launching of a new business-reporting model geared towards releasing more non-financial information to the public and with clear description of the role of independent audit.

Introduction

Auditing adds credibility to the financial statements and contributes tremendously to the efficient running of business organizations, the capital markets, and the economy as a whole [ 56 ]. However, the work of the auditors has become onerous because of globalization and its attendant risks of doing business, dynamic business environment, and increased sophistication in information technology. Based on the unprecedented opportunities, companies have expanded with more transactions that are complex, and control systems have become more sophisticated and highly computerized with technology such as advanced manufacturing technology used in running the factories. Although audit strategies have changed over the years, the changes have not matched with the dynamics in the business environment. Audit processes carry greater risk because of the use of statistical sampling techniques for audit tests. In addition, most of the computer-assisted audit techniques (CAATs) have their limitations. Most times, they fail to work with real-time data streams of today’s business environment. Hence, they are not able to detect doubtful transactions such as potential frauds or irregularities.

The financial scandals of the recent years in the big companies like, Enron, Tyco, WorldCom, and in Nigeria, African Petroleum Plc. and Cadbury Nig. Plc exacerbate the above problems. These events have made the public who are at the receiving end to believe that the auditors either fail in their role or wilfully collude with the management and board. The stakeholders agitated because these corporate failures in many respects are traceable to the financial improprieties of the directors and yet, the auditors did not qualify their reports. For example, the distress witnessed in the banking sector in Nigeria between 1997 and 1999 was due to poor corporate governance and opportunistic behaviours of the directors. In addition, the banking industry experienced another failure in 2009 following the global credit crunch and the shock prompted the collapse of the capital market. Between 2002 and 2005, Cadbury Nig. Plc. overstated its profit by N13.25 billion and Akintola Williams Deloitte, the external auditors, failed to discover it. Similarly, in 2007, the account of Nampak Nig. Plc. was equally overstated its by N2.8 billion, while the Board of defunct African Petroleum Plc. concealed N22.00 billion loan in its year 2000 accounts [ 47 ]. These are just few of the fraud cases in the private sector and in the public sector, it is even worse. Consequently, the profession has lost the confidence of the public and the greatest challenge is how to win back the public trust.

The question that has been agitating the minds of many stakeholders is: why are the auditors not held liable for the corporate failures, particularly when the accounts of these companies received clean bills. Maccarrone [ 39 ] believed that the astronomic rise in public agitation and controversies against the auditors was because of the financial scandals and audit failures of recent years. There is also a common belief by the various stakeholders that the audited accounts serve as certification of the company’s solvency, propriety, and business viability [ 24 ]. Therefore, the public considers corporate failures in the firms to be synonymous with audit failures. When the audit process fails to detect fraud, there is always public outcry against the auditor and his work. Owolabi [ 53 ] seemed to align with this position by expressing that several billions of naira was lost by investors through the connivance of preparers of the accounts and auditors in falsifying the figures and hence, manipulating the earnings to reflect a position that is different from the true position. This is the basis for the conflict of interest between the users and auditors.

In the opinion of the users, the auditor’s duties should be both explicit and implicit. That is, it should go beyond the statutory role. In fact, the perception of the users is that, an auditor through his professional capability could prevent and detect fraud, errors, and irregularities that might harm the users of accounts, whereas auditors in their opinion believe that they have an explicit role clearly defined by the law, such as Nigerian Companies and Allied Matters Act (CAMA) [ 15 ]. Akinbuli [ 5 ] argued that an auditor does not have the responsibility to detect fraud or irregularities. According to him, the primary responsibility of an auditor is to give credibility to the accounts prepared by the directors and in so doing, he exercises due care and skill in the conduct of his work.

The major area of conflict is the gap between the auditors’ statutory role and public expectation of what is believed to be auditors’ function. Sikka et al. [ 65 ] stated that the expectation gap of audit is paramount in the conduct of audit work because any unfulfilled expectations to the society would definitely lower the credibility and earning capability of the audit firm and by extension could be injurious to the stakeholders. The public trust is the ‘heartbeat of any profession’. When the trust is lost, the result is credibility problem and erosion of value attached to the profession [ 11 ]. The indictment of Arthur Anderson in Enron’s case showed the extent to which the judiciary could go in the interpretation of what constitutes the auditor’s negligence and it is a wake-up call on the accountancy profession as a whole. For audit to sustain its relevance, the profession must improve on the speed of response to the demands of the society.

In view of the above challenges, the researcher is motivated to examine empirically the extent and nature of audit expectation gap in Nigeria, particularly with the introduction of new auditor’s report in 2016. Although there exist vast documented studies on audit expectation gap in developed economies, most of the conclusions could not be adapted by the developing economies because of the cultural and legislative differences. Moreover, audit environment influences the views of the respondents. In Nigeria, not many studies documented the problem associated with expectation gap in audit and some researched works relatively used few sample size, while others restrict the sampled respondents to only a section of the population. Most importantly, many of the available studies in the country were conducted before 2016, when the new auditor’s report had not been introduced. This study, therefore, attempts to add to knowledge by filling these gaps in the literature.

Literature review

Auditing and accounting.

There are various ways to define accounting. Hence, the American Accounting Association’s (AAA) definition was adopted in this study. This is because it is widely accepted in accounting literature. The AAA defines accounting as “the process of identifying, measuring and communicating economic and financial information to permit informed judgement and decision by the users of the information” (cited by Glautier and Underdown [ 23 ]; Olojede [ 47 ]). There is general acceptability that information derived from the financial statements is used for making economic decisions [ 70 ]. Thus, accounting information should be able to assist the users in his desire to “predict, compare and evaluate” his decision options [ 16 , 34 ]. The relevance, reliability, and comparability of information generated from financial statements become effective when it truly represents the ‘economic substance’ of an entity [ 67 , 73 ].

Accounting information constitutes a major part of the total corporate information. Due to control and conflict of interest that arise between the principal and the agent, an independent person is engaged to verify the report of the agent to give credence to it due to the separation of ownership. The credibility that is added by auditing strengthens the quality of information in the financial statements. Flint [ 21 ] observed that auditing came into existence because interested individuals or groups were not able to obtain information or assurance needed on their own. He described audit function as a social control mechanism used to monitor conduct, evaluate performance, and enforce accountability. This is the whole essence of agency theory. Mautz and Sharaf [ 42 ] expressed the primary objective of audit is to examine the measurement and communication in property accounting. They further postulated that, “accounting information must be reliable. Otherwise, the existence of auditing is of no value” [ 47 ].

Auditing is an independent examination of the books and accounts with a view to reporting on the fairness of the financial statements. An auditor expresses opinion on truth and fairness of the financial statements prepared by the directors [ 18 ]. The American Accounting Association (AAA) through the Committee on Basic Auditing Concepts provided a definition, which is more acceptable. The committee’s definition as cited by Arens et al. [ 10 ] expounded auditing as “a systematic process of objectively obtaining and evaluating evidence regarding assertion about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users”. This implies that an auditor must demonstrate professional prowess. He must be methodical, objective, and analytical in the conduct of his work, and be able to communicate effectively the results of his work to the stakeholders.

The agency theory, accounting theory, and auditing theory are intertwined. Although auditing and accounting are different phenomena, the two are, however, complementary. While accounting is concerned with the preparation and presentation of financial reports, auditing on the other hand entails an independent examination of accounts in order to give it credibility. Where an auditor accepts the responsibility for preparing accounts he only acts in that capacity as an accountant and not, as an auditor. This is why, it is important to state expressly the scope and nature of work in the letter of engagement [ 74 ]. Otherwise, the conflicting roles could undermine the independence of the auditor.

• Audit expectation gap

The agency problem led to the services of auditors. The shareholders expect the auditors to give credence to the financial statement presented to them. Despite the importance of audit function, to define the role of auditors in the most acceptable way has always been a difficult task [ 8 ]. This challenge creates a perception gap between the users and auditors. The perception gap appears to have been exacerbated by the financial scandals of big companies like Enron and WorldCom. Liggio [ 38 ] introduced the phrase “audit expectation gap”. In his paper, he described the audit expectation gap as the difference in the perception of the users and auditors regarding the level of performance exhibited by the auditors in the course of their work. The Cohen Commission [ 14 ] expanded this definition to cover the gap that may exist between what the public expects and what the auditors can reasonably achieve. Porter [ 54 ] noticed that the definitions of Liggio [ 38 ] and Cohen Commission [ 14 ] failed to acknowledge that there could be sub-standard performance by the auditors. She attributed the recent increase in criticism of and litigation against auditors to the inability of the auditors to keep pace with the public demands (also cited by Akinbuli [ 5 ]). She defined audit expectation gap as the gap between the society’s expectations of the auditors and the performance of the auditors.

Salehi [ 60 ] stated that “the audit expectation gap refers to either or both of these two: (1) differences in opinion on actual performance and expected performance of auditors (2) existence of these opinion differences between the auditors and users of accounts independently and comparatively”. Public expectation can be described as a burglar alarm system, a radar system, a safety net, independent auditor, and coherent communication, which contradicts basic tenants of audit [ 72 ]. Lee et al. [ 35 ] in their study concluded that the users and the auditors perceive the nature and objectives of auditing differently. According to them, it is the conflict in by the two groups that is called “audit expectation gap”. Ojo [ 45 ] defined audit expectation gap as “the difference between what the users of financial statements perceive an audit to be and what the audit profession claim is expected of them in conducting an audit”. Within the context of regulation, audit expectation gap is defined as “an outcome of the contradiction of minimum government regulations and the profession’s self-regulation, particularly the over-protection of self-interest, which has widened the expectation gap” [ 62 ]. Onulaka [ 51 ] suggested that audit expectation gap is the difference between what the public and users of financial statements believe the responsibilities of auditors should be and what the auditors believe their responsibilities are.

The confidence that the society places in the effectiveness of the audit work and the opinion of the auditor are the pivots on which audit function rests. When there is betrayal of confidence, the efficacy of the audit function is undermined [ 19 , 55 ].

Components of audit expectation gap

The Canadian Institute of Chartered Accountants [ 40 ] sponsored a study on audit expectation gap, and the outcome (MacDonald Report) of the study conceptualized a model, which divided audit expectation gap into unreasonable expectation, deficient performance, and deficient standards. Building on this model, Porter [ 54 ] classified the expectation gap into two components to assist in reducing the audit expectations gap by treating each case on its own merit. Following her survey in New Zealand, she re-named the audit expectation gap as the “audit expectation-performance gap” and structured it into ‘reasonable gap’ and ‘performance gap’. The reasonable gap described the difference between “what the public expects auditors to achieve and what they can reasonably be expected to accomplish”. On the other hand, performance gap is the difference between “what the public can reasonably expect auditors to accomplish and what auditors are perceived to achieve”. She further divided performance gap into ‘deficient standard’ and ‘deficient performance’. Deficient standard is the gap between “what can reasonably be expected of auditors and auditors’ existing duties as defined by the law and profession standards”. Deficient performance is the difference between “the expected standard of performance of auditors’ existing duties and auditors’ perceived performance, as expected and perceived by the public”.

The concept of audit materiality as a component of audit expectation gap has little attention in accounting literature [ 4 , 27 , 43 ]. However, it can be examined from two perspectives: the first relates to individual items in the financial statements, and the second relates to the financial statements as a whole [ 27 ]. Boterenbrod [ 13 ] studied audit expectation gap between companies and their auditors, using materiality of the financial statements as a whole for measurement. The results of his work showed that the materiality-level assumption by the preparers of the accounts was lower than what the auditors applied. However, many expectation gaps, which give rise to different structures and components, do exist in the literature [ 30 , 46 ]. Hence, ACCA [ 1 ] proposed that the audit expectation be divided into three components and went into proposing different solutions into reducing them. The new components are knowledge gap, performance gap, and evolution gap. The knowledge gap is the difference between what the public thinks auditors do and what the auditors actually do. This takes into cognizance the fact that the public can misunderstand auditors work. The performance gap concentrates on where auditors fail to comply with the regulations or standards. The evolution gap focuses on the areas of audit where there is need for evolution based on the general public demand, technological changes and where the overall audit process can be improved through value addition.

Causes of audit expectation gap

The audit expectation gap, which has become a threat to the auditing profession, is attributed to many factors. Tricker [ 71 ] observed that audit expectation gap is caused by the time lag in the auditing profession in identifying and responding to continually evolving and expanding public expectations. Wolf et al. [ 75 ] traced audit expectation gap to lack of perceived independence and argued that the audit report becomes a document that promotes company’s image. Lee et al. [ 37 ] attributed the causes to misconception, ignorance by the users, unreasonable public’s expectation, weak legislations, and poor quality work by the auditors. The causes also include uncertainty in the nature of auditing [ 60 ], the consequence of self-regulation of auditing profession with little or no interference by government [ 52 ], the ignorance, misunderstanding, and unreasonable expectations of the users about audit functions [ 48 ]. In addition, Shaikh and Talha [ 64 ] stated that reasons for audit expectation gap include corporate failures that made the public to lose confidence in the audit process, the retrospection, evaluation of audit performance, and response time lag due to evolutionary development in auditor’s role. Ruhnke and Schmidt [ 58 ] attribute the causes of audit expectation to exaggeration of the audit expectation gap by the public, inability of the public to accurately assess the performance of the auditors, deficiency in auditors’ performance, and auditors are not fully aware of their responsibilities.

Consequences of audit expectation gap

The audit expectation gap is not without some consequences. Sikka et al. [ 66 ] expressed that audit expectation gap has negative impact on the auditing profession. According to them, it undermines the credibility, earnings potential, and reputation associated with audit work. They further stated that in a capitalist economy, the process of wealth creation and political stability depends on the level of confidence people have in the process of accountability. Hence, the audit expectation gap could be injurious to the users of accounting information, regulators, investors and government. The public trust is the ‘heartbeat of any profession’. When the trust is lost, the result is credibility problem and erosion of value attached to the profession [ 11 ]. The corporate failures are taken to be synonymous with audit failures. This perception by the stakeholders increases the liability risks and the amount of criticisms against the auditors [ 36 , 39 ].

Reducing the audit expectation gap

The inherent attributes of the audit expectation gap make its elimination difficult [ 29 , 66 ]. The perceived performance of an auditor is dynamic. As such, its measurement is difficult. What is, therefore, possible is to reduce it. The extant literature showed a number of ways on how to reduce it. These include enlarging the auditor’s responsibilities regarding fraud, errors, and illegal acts; an expanded audit report, audit education, and enhancing the perceived independence of an auditor [ 40 , 44 , 63 , 66 ]. In addition, the audit expectation gap can be bridged through mandatory audit rotation, regulating the appointment of auditors and limiting the mix services audit can render [ 69 ]. Some studies suggested the use of structured methodologies in the course of an audit assignment. This method would enhance the quality of audit work and improve users’ satisfaction, and consequently, reduce the audit expectation gap [ 31 ]. However, there is no consensus among the researchers on the use of this method in reducing the audit expectation gap.

Theoretical review

There are many theories relating to the responsibilities of the auditors and the subject of audit expectation gap, but for the purpose of this study, the role conflict theory was selected and discussed briefly. This is because it is relevant and thus provides theoretical foundation for the empirical study.

The role conflict theory

The theory provides a theoretical explanation for the existence of audit expectation gap. Rizzo et al. [ 57 ] developed the role conflict theory. The theory rests on the premise that the auditor has a responsibility to examine the books of accounts and give credence to the financial statements prepared by the board, and the stakeholders expect the auditor to undertake this assignment faithfully [ 32 ]. According to the theory, the auditor assumes the status of a professional person in a social system. As such, the auditor must comply with the role specifications provided to him by the society. Where there is a breach, compliance can be enforced through social action and this may even entail penalties, where it is necessary [ 17 ]. Biddle and Thomas [ 12 ] described the auditors’ role as “the interactions of the normative expectations of the various interest groups in the society. These interest groups are different role senders who may have direct or indirect relationship to the role position”. This implies that an auditor is not only responsible to the shareholders, but also to other stakeholders who are the users of accounting information.

From Davidson [ 17 ] work, the stakeholders include management, institutional investors, financial analysts, tax authorities, and creditors. All these groups have different expectations, which are in most cases not constant. The expectations of the groups change occasionally because they have to re-define their role specifications and interplay with other societal factors. The multi-dimensional expectations are the basis for role conflict. Most times an auditor’s obligation to first comply with professional rules and regulation governing his work makes him to conflict with his role as a ‘watch-dog’ to the users of accounts, while at the same time he must protect his own interest. Similarly, when there is a misunderstanding of the nature of auditors’ responsibilities, the users’ expectation varies and because there are many users of accounting information, their individual expectations may also vary [ 59 ]. What determines the magnitude of audit expectation gap is the extent to which auditor is able to provide a trade-off between all the conflicting interests [ 7 ].

Empirical review

There are many prior studies both in developed and emerging countries on the subject of audit expectation gap. These studies [ 3 , 9 , 11 , 22 , 26 , 41 , 51 , 54 , 61 , 68 ] mostly used survey questionnaire to identify the inherent attributes of the gap, its effects, and ways of narrowing it. The research studies outcomes largely showed the presence of users misunderstanding as regards auditor’s duties and responsibilities. Audit environment, however, influenced the divergent views among the various groups. We have reviewed previous studies, and some of the findings are reported below.

Haniffa and Hudaid [ 25 ] studied audit expectation gap by considering the tradition and culture in Saudi Arabia. They collected data, using mailed questionnaire and semi-structured interviews. Descriptive statistics and Mann–Whitney U test were employed for data analysis. The findings showed that the performance gap significantly exists in the area of auditors’ responsibilities as statutorily provided for and those reasonable expectations of the public in Saudi Arabia. Salehi et al. [ 62 ] examined audit independence and expectation gap in Iran. The questionnaire was distributed to 214 investors and 227 chartered accountants. The data collected were analysed through descriptive statistics and Mann–Whitney U test. The results revealed a significant expectation gap between the investors and auditors on actual level of audit independence in Iran. Lee et al. [ 37 ] examined the causes and remedies of audit expectation in Malaysia. The data were gathered from 35 people through semi-structured interviews. They noted some complexities in the reasons for audit expectation gap. They attributed the causes to misconception, ignorance by the users, unreasonable public’s expectation, weak legislations, and poor quality work by the auditors. Humphrey et al. [ 28 ] investigated the audit expectation gap in the UK. They used series of unstructured interviews to obtain data from the management, auditors, investors, regulators, and other undefined respondents. Their results showed that auditors’ and financial statements users’ perceptions were different in respect of the nature and conduct of an audit. They also confirmed that the concept of accrual reporting in accounting contributes to the problem of audit expectation gap. Porter [ 54 ] investigated audit expectation gap in New Zealand and observed significant difference in the belief statements of the auditors and audit beneficiaries in relation to the auditors’ duties. She noted several differences in attitude. For instance, the audit beneficiaries were of the view that auditors should act as a watch-dog to the public, but the auditors did not agree with this position. Salehi [ 61 ] investigated audit expectation gap in Iran and used a new approach to measure the gap. He adopted Porter [ 54 ] model in measuring the audit expectation gap, and the results confirmed the existence of audit expectation gap in Iran. Farasangi and Nohongdari [ 20 ] reviewed the relationship between audit expectation gap from attitude of accreditation of independent auditors and non-payment of granted facilities in Iran. Their results showed a high positive relationship between expectation gap from attitude of accreditation of independent auditors and non-payment of granted facilities. Alawi et al. [ 6 ] examined the determinants of audit expectation gap in the Kingdom of Bahrain and concluded that the skills of auditors, efforts of the auditors, the knowledge of the public on audit function, and users’ needs from auditors have significant impact on audit expectation gap in Bahrain.

Monroe and Woodliff [ 44 ] examined the influence of education on respondents’ beliefs concerning information in the audit reports. The study administered questionnaire to the undergraduate students. The outcome revealed an existence of expectation gap and that education had a great influence on the students’ beliefs. They also discovered that the use of long-form of auditors’ report would significantly affect beliefs and consequently reduce the gap, but new contrasts in beliefs may emerge. Fulop et al. [ 22 ] also examined audit education role in reducing the expectation gap. Their findings indicated that audit education has a significant impact in constraining the ‘audit reasonableness expectation gap’. Schelluch [ 63 ] in his study of long audit report and audit expectation gap observed the persistence of audit expectation gap after the long-form audit report was introduced in Australia. However, perception gaps between auditors and users were narrowed down in some areas, especially in the way the expanded report was worded, although the users still believe strongly that auditors should be responsible for preventing fraud and also expressed concerns on whether the financial information can easily be verified and used consistently. Best et al. [ 11 ] investigated the impact of long-form audit report on the audit expectation gap in Singapore. They adopted Schelluch [ 63 ] research design and found a moderate audit expectation gap in Singapore, which showed an improvement over the use of short-form audit report. Mansur and Tangi [ 41 ] in their work on how to bridge the audit expectation gap concluded that it could be bridged through educating the users of financial statements and more effective communication between the auditors and the users. Taslima and Fengju [ 69 ] used existing literature to review the stakeholders’ trust towards the role of auditors and concluded that auditing profession must remove the toga of self-regulation and address the reality of audit expectation gap before this phenomenon would completely erode the trust of the stakeholders.

Adeyemi and Uadiale [ 3 ] studied audit expectation gap in Nigeria. They used survey research method and structured questionnaire in collecting data. Using purposive sampling technique, they sampled two hundred (200) respondents. For the analysis of data, descriptive and inferential statistics were used. The testing of the hypotheses was done using analysis of variance (ANOVA). It was revealed in the findings that audit expectation gap existed in Nigeria, and there was significant difference in the beliefs of the groups regarding the responsibilities of auditors. Oseni and Ehimi [ 50 ] investigated the nature and degree of audit expectation gap in Nigeria. The data were obtained through questionnaire, and 160 respondents were sampled. They used Chi-square for data analysis, and their results showed that there was an outstanding contrast in the auditor’s duties for preventing and detecting fraud. Regarding the difference in belief of auditor’s report, Tanko [ 68 ] confirmed a wide audit expectation gap on the quality of audit report in the public sector in Nigeria, while Adeyemi and Uadiale [ 3 ] observed wide expectation gap on decision usefulness of audit report in the private sector. Onulaka [ 51 ] examined the effect of audit expectation gap in the Nigerian capital market and confirmed the wide gap in the areas of auditor’s responsibility for fraud detection and prevention. Appolos et al. [ 9 ] studied new auditors’ reporting standards and its impact on the audit expectation gap. Using desk research method, they concluded that the new auditors’ reporting standards would no doubt narrow the gap regarding performance and communication, including liabilities gap.

Considering the issues reviewed, the study hypotheses are stated as follows:

The opinion of the users with respect to the responsibility of the auditors for the audited financial statements is not different from the auditors’ opinion.

The opinion of the users regarding the reliability of audited financial statements is not different from the auditors’ opinion.

The opinion of the users on the decision usefulness of the audited financial statements is not different from the auditors’ opinion.

Methods and material

This study applied the descriptive design and collected data mainly from the primary source. The data were acquired using semantic differential questionnaire, which was adopted from Schelluch [ 63 ] and Best et al. [ 11 ] to measure the opinions of the respondents regarding the duties and responsibilities of auditors. This is to aid in the provision of an authentic assessment of audit expectation gap in Nigeria and also grant basis for comparison with other prior studies.

Sampling techniques

The geographical study area for the research is Lagos, and it was chosen because it is the commercial centre of Nigeria. The Nigerian Stock Market and head offices of most of the multi-national companies and banks are also resident in Lagos. The study consists of two (2) sets of population. The first set is users of the financial statements in Nigeria which include, bankers, investors, stockbrokers, and financial analysts, and the second set is the accountants in practice (auditors) in Nigeria. We adopted purposive sampling technique to determine our samples for the two sets of population. The sampling technique enables the researchers to use their skills, prior knowledge, and experience to select appropriate respondents [ 49 ]. The major attribute of this technique is that it ensures that data are collected from respondents, who in most cases are difficult to locate, but are crucial to the accomplishment of the study [ 2 ]. Consequently, we surveyed 430 respondents in Lagos. The questionnaire was distributed to 300 users and 130 auditors, respectively.

Method of data analysis

Since the data are nonparametric, the study employed Mann–Whitney U test as a means of analysing the collected data. It is an analogous of t test for two independent samples. The test statistic measures the difference between the ranked observations of two samples [ 33 ], hence preferred in this study to ascertain the significance difference among the respondent groups.

We present below the Mann–Whitney U test formula [ 33 ] used in the study, and the data are processed, using SPSS Statistics:

where U  = Mann–Whitney U test, n 1  = sample size one, n 2  = sample size two, R i  = rank of the sample size.

Results and discussion

In this section, the results of the primary data analysis are presented and conclusions drawn therefrom.

Respondents response rate

For this study, 430 copies of questionnaire were sent out to the two groups in our survey. We distributed 300 copies to the users’ group and 130 copies to the auditors’ group. Provided in Table  1 is the rate of response and other demographic information.

The observation from Table  1 shows a total response rate of 67.90%. This is not only encouraging, but also acceptable for a research of this nature. Breaking this down further shows that 66.67% and 70.67% are the response rates for the users group and auditors group, respectively.

Respondents occupation

Table  2 reveals that 87.33% of the respondents are engaged in accounting-related occupation. Their professional knowledge and exposure make them most suitable for the survey, and this gives credibility to the study.

Results of statistical tests

Table  3 shows the results of responsibility statement test, using Mann–Whitney U test. They reveal a high significant difference between the users and the auditors regarding auditors’ role in detecting of errors and fraud, maintaining good internal control system, preventing of errors and fraud, keeping the proper records of books of accounts, preparing the financial statements and reporting the future prospects. This is confirmed by p  < 0.05. The two groups strongly believe that the auditor should be objective and not biased in the discharge of his responsibilities. However, there is a significant difference as shown in the p value of 0.002. In the case of professional judgement, the p value of 0.005 is observed and this is lower than 0.05. There is an equally strong significant difference in the perception of the users and the auditors in the use of professional judgement in choosing audit procedures.

Table  4 shows details of the results of reliability statement statistical test. From the table, the p value for the clarity in the way the work done by the auditors is communicated is 0.238, which is greater than 0.05. Hence, no significant difference exists between the two groups, whereas significant difference for the two groups is high regarding the extent of clarity in the expression of audit assurance given by the auditors and the company being free from fraud as confirmed by the p values of 0.000 and 0.002, respectively, each being less than 0.05 at 5% significance level. In the case of fairness and no material misstatement in the financial statements factors, a moderate significant difference is observed between both the users and the auditors. This is because their p values of 0.019 and 0.022, respectively, are less than 0.05.

Table  5 shows the results of decision usefulness statement statistical test, using Mann–Whitney U test. The results indicate a high significant difference in the views of the users group and the auditors group on whether an unqualified audit report is a proof that the company is well run, as evidenced by the p value of 0.000 which is less than 0.05. The p values for usefulness of audited financial statements in assessing performance and making decisions are 0.089 and 0.067, respectively. Thus, we can draw an inference that no major difference exists between the views of users group and auditors group on the two decision usefulness factors because their p values are far above 0.05.

Table  6 reveals that p values for the three hypotheses are 0.000, 0.004 and 0.000, respectively, which means that all three hypotheses are less than 0.05. Consequently, the null hypothesis (H 0 ) is rejected at 5% significance level. By this outcome, we conclude that wide significant differences exist in the opinions of the two groups, users, and auditors in relation to responsibility, reliability, and decision usefulness statements.

Table  7 presents the outcome of the normality test. From the table, the p values for the users group and auditors group are 0.663 and 0.748, respectively. The p value is higher than 0.05 for each group (users and auditors); this implies that perceptions of the two groups are normally distributed.

The primary objective of the study was to empirically investigate the extent and nature of audit expectation gap in Nigeria. The hypotheses results confirmed the non-suitability of the null hypotheses for this study and hence, their rejection. We therefore conclude that there is a gap between the perceptions of the users and the auditors with reference to reliability, decision usefulness statements, and responsibility. From the result, the audit expectation gap was quite high in the area of the auditor’s responsibilities, especially with regard to the prevention and detection of errors and frauds, maintaining of the proper books and the preparation of financial statements. These findings are consistent with the results of Best et al. [ 11 ], Adeyemi and Uadiale [ 3 , 48 ], except that Best et al. [ 11 ] did not find audit expectation gap in the preparation of financial statements. To a lesser extent, there was a significant difference between the two respondent groups on the extent of clarity of expression in assurances given by the auditors and clean report as a sign that the entity being well managed. Best et al. [ 11 ], on the contrary, found no significant difference on the two reliability and decision usefulness statements.

Conclusion, contribution, and recommendation

This research confirmed the existence of audit expectation gap in Nigeria. The impact of the new auditor’s report was yet to be seen. This was partly due to the non-compliance by many of the audit firms and the nature of the audit expectation in the country. The audit expectation gap was more pronounced in the area of auditor’s duties and responsibilities. While the users believed that the auditor’s duties and responsibilities as defined by the Companies and Allied Matters Act of 2004 should be expanded to cover the prevention and the detection of errors and fraud, the auditors were of the view that such an amendment in the legislation would negate the whole essence of audit. From the outcome of this study, the audit expectation gap primarily arose from the unreasonable expectation of the users due to their lack of understanding on the roles of auditors. This is consistent with the role conflict theory, which states that conflict in the perception of the role of auditors is what is called “audit expectation gap”.

The auditors’ role is described as “the interactions of the normative expectations of the various interest groups in the society. These interest groups are different role senders who may have direct or indirect relationship to the role position” [ 12 ]. This implies that an auditor is not only responsible to the shareholders, but also to other stakeholders who are the users of accounting information. Hence, the auditors face a multi-task and multi-expectation assignment that is difficult to fulfil. The role conflict indicates that statutory objective of audit is not responsive to societal expectations. In Nigeria, the audit expectation gap is due to the changes in the business environment. Consequently, the auditors are constantly under the threat of a credibility and liability crisis from the increased litigation against and criticism of their work [ 37 ]. However, the audit expectation gap poses a very serious threat to the auditing profession and auditors cannot continue to maintain a legalistic posture, while the public are dissatisfied with their services. More so, the evolution in auditing profession has always been based on the changing demands in the society. For audit to sustain its relevance, the profession must improve on the speed of response to the demands of the society.

Based on the empirical findings of this study, these recommendations are provided:

The auditors should improve the communication level in order to address the users’ misconception of audit services and function. The introduction of the new auditor’s report by the International Auditing and Assurance Standards Board (IAASB) in 2016 was a response to the recommendations of the prior studies on the expanded audit report, but the local regulatory bodies in the country must ensure its compliance and enforcement to the fullest in order to produce the desired results.

The Companies and Allied Matters Act (CAMA) [ 15 ] should be reviewed with a view to expanding the existing duties and responsibilities of the auditors particularly, accommodating the demand of the public in terms of the prevention and the detection of errors and fraud. If this must be done, more powers should be given to the auditors to enable them report any serious misconduct of the directors to the appropriate regulatory authority. This is whistleblowing, which can serve as a safety valve against fraud, irregularities, and excessive risk taking. The July 2016 pronouncements on responding to non-compliance with laws and regulations by International Ethics Standards Board for Accountants (IESBA) are steps in the right direction.

The rotation of external auditors provided for in the Nigerian Code of Corporate Governance (2018) is principle-based, and we suggest that it should be made compulsory for all companies by including this provision in Companies and Allied Matters Act with stiff penalty for non-compliance.

An audit firm should not be allowed to carry out both audit and non-audit professional services in a client organization. This is to preserve the auditors’ independence and avoid conflict of interest that normally attend the rendering of the two professional services.

On a longer term, the regulatory agencies with the support of audit firms should facilitate the launching of a new business-reporting model geared towards releasing more non-financial information to the public and with clear description of the role of independent audit.

Availability of data and materials

The data sets used and/or analysed during the current study are available from the corresponding author on reasonable request.

Abbreviations

American Accounting Association

Analysis of variance

Computer-assisted audit techniques

Companies and Allied Matters Act

International Ethics Standards Board for Accountants

International Auditing and Assurance Standards Board

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Environmental audits: A literature review

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This paper presents a literature review focused on predictive technique audits, one of the types of audit considered to have the greatest potential role in improving environmental impact assessment practice. The literature review is limited to US literature with the exception of a few UK audits, one undertaken by Tomlinson at the University of Aberdeen. The authors are, however, aware that literature from other countries exists on this subject, for example from Canada and South Africa.

In the review, predictive technique audits performed for or by the US Bureau of Land Management, the Electric Power Research Institute, the US Nuclear Regulatory Commission, the US Corps of Engineers, together with the Wisconsin Power Plant Impact Study are described. In addition, articles describing the auditing of models designed to predict environmental change are reviewed, before details of auditing activity in the UK are presented.

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Creating a school behaviour culture: audit and action planning tools

Tools to help schools assess their behaviour culture, recognise good practice and identify areas that need attention.

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The audit and action planning tools have been designed to support school and academy trust leaders, senior leadership teams, governing bodies and trustees to create a culture that promotes excellent behaviour.

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Self-assessment and action planning can help to set or re-set the vision for a whole-school behaviour culture. These activities are also an opportunity to celebrate and share good practice.

The audit and action planning tools are based on 6 focus areas for schools in designing, building and maintaining a good behaviour culture.

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Download the audit tool ( MS Word Document , 35.6 KB ) to start your assessment.

Once completed, the audit tool will provide an overview of the current culture. Your school’s score will indicate where practice is strong and where it should focus its attention.

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• using surveys to ask staff, pupils, governors, trustees and other stakeholders about their perceptions and experiences of the school behaviour
• looking at recent Ofsted reports, school performance data, school development plans, school self-evaluation and the headteacher’s report to governors or trustees
• analysing data on behaviour incidents, removal from classrooms, attendance, suspension and permanent exclusions, use of pupil support units, off-site directions and managed moves, and incidents of searching, screening and confiscation
• observations of pupil behaviour at school arrival, departure and social times, and movement between lessons
• a walk around the school to gauge classroom expectations and culture

Audit tool scores

Allocate a score to each statement within the audit tool. You can use the tool to record evidence to support your scores. You can also record information on best practice, gaps or issues, or details that need further investigation. 

Score statements from 1 to 4. The scores provide a structure to identify your school’s current position in relation to its policy and practice in each area.

Score 1: identifying

Leaders are identifying a realistic picture of what is happening, and the work needed in this area. 

Score 2: developing and implementing

Leaders have identified what is working well and those areas that need further development. They are in the process of building systems, routines and practices, and are beginning to implement them.

Score 3: embedding

Leaders have successfully introduced systems and practices that staff, pupils and other stakeholders are following and implementing.

Score 4: sustaining

Policies and practices are embedded. There is buy-in from the whole school community, and cohesive and consistent practice across the school.

Ask pupils and staff about the behaviour culture

Schools are encouraged to collect data from a range of sources, including surveys of all staff, pupils, governors, trustees and other stakeholders. Schools can then gauge perceptions and experiences of the school behaviour culture.

Using a survey can allow your school to develop a precise action plan and pinpoint areas to focus on. A follow-up survey can also be a useful tool to measure progress.

Download staff and pupil surveys ( PDF , 127 KB , 3 pages ) for examples of topics and questions to use in your survey.

Identify priority areas

Organise a debrief session for your school following the self-assessment activity, to reflect on findings. You can then agree priority areas for focus, based on the assessment and consideration of the available evidence.

Use the action planning tool as a framework to identify areas of focus and to implement and monitor the action needed to make progress.

Download the action planning tool ( ODT , 21.6 KB ) .

Findings from the staff and pupil surveys and self-assessment outcomes should feed directly into the development of your school’s action plans. The action planning tool has been designed to help schools implement and monitor the actions taken.

Develop a step-by-step plan

You could develop a step-by-step plan for your school. Split your plan up to include steps on:

• identifying issues
• developing a new approach, including engaging staff and delivering effective training
• launching the new approach
• monitoring and evaluation

Schools and trusts should:

• revisit the sections of the tool periodically to test the implementation and impact of the action plan
• undertake a formal review of the action plan after one year to identify progress

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Transformations That Work

• Michael Mankins
• Patrick Litre

More than a third of large organizations have some type of transformation program underway at any given time, and many launch one major change initiative after another. Though they kick off with a lot of fanfare, most of these efforts fail to deliver. Only 12% produce lasting results, and that figure hasn’t budged in the past two decades, despite everything we’ve learned over the years about how to lead change.

Clearly, businesses need a new model for transformation. In this article the authors present one based on research with dozens of leading companies that have defied the odds, such as Ford, Dell, Amgen, T-Mobile, Adobe, and Virgin Australia. The successful programs, the authors found, employed six critical practices: treating transformation as a continuous process; building it into the company’s operating rhythm; explicitly managing organizational energy; using aspirations, not benchmarks, to set goals; driving change from the middle of the organization out; and tapping significant external capital to fund the effort from the start.

Lessons from companies that are defying the odds

Idea in Brief

The problem.

Although companies frequently engage in transformation initiatives, few are actually transformative. Research indicates that only 12% of major change programs produce lasting results.

Why It Happens

Leaders are increasingly content with incremental improvements. As a result, they experience fewer outright failures but equally fewer real transformations.

The Solution

To deliver, change programs must treat transformation as a continuous process, build it into the company’s operating rhythm, explicitly manage organizational energy, state aspirations rather than set targets, drive change from the middle out, and be funded by serious capital investments.

Nearly every major corporation has embarked on some sort of transformation in recent years. By our estimates, at any given time more than a third of large organizations have a transformation program underway. When asked, roughly 50% of CEOs we’ve interviewed report that their company has undertaken two or more major change efforts within the past five years, with nearly 20% reporting three or more.

• Michael Mankins is a leader in Bain’s Organization and Strategy practices and is a partner based in Austin, Texas. He is a coauthor of Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power (Harvard Business Review Press, 2017).
• PL Patrick Litre leads Bain’s Global Transformation and Change practice and is a partner based in Atlanta.

Partner Center

Maybe Erik Larson Should Have Left the Civil War Alone

In “The Demon of Unrest,” present-day political strife inspires a dramatic portrait of the run-up to the deadliest war on American soil.

Maj. Robert Anderson in 1860. Credit... George S. Cook, via Library of Congress

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By Alexis Coe

Alexis Coe is a fellow at New America and the author, most recently, of “You Never Forget Your First: A Biography of George Washington.”

• April 30, 2024
• Barnes and Noble
• Books-A-Million

When you purchase an independently reviewed book through our site, we earn an affiliate commission.

THE DEMON OF UNREST: A Saga of Hubris, Heartbreak, and Heroism at the Dawn of the Civil War, by Erik Larson

The Civil War is one hell of a drug. It’s plentiful and Main Street-legal, but can induce hallucinatory visions when mixed with inflammatory substances. “I’m so attracted to seeing it,” former President Donald J. Trump confessed at a rally this past Jan. 6, three years after his “Big Lie” inspired followers to storm the Capitol — a feat the Southern Confederacy and its campaign to preserve slavery were unable to accomplish, even as the effort left more than 600,000 people dead in its wake.

In “The Demon of Unrest ,” Erik Larson recounts being “appalled” but also “riveted” by Jan. 6 and by “today’s political discord, which, incredibly, has led some benighted Americans to whisper of secession and civil war.”

When Larson, the reigning king of Dad History, drops a new book on the Civil War a month and a half before Father’s Day in a pivotal election year, he knows what he’s doing. Sort of. “The Demon of Unrest ” is Larson’s first book on the Civil War. And his green horns show.

Ostensibly, it mirrors his best-selling books — among them, “ The Splendid and the Vile ” and “ The Devil in the White City ” — with the same pulpy, black-and-white cover treatment and bulky page count, satisfying the collect-them-all, size-matters kind of reader.

The drama unfolds between Abraham Lincoln’s election in November 1860 and the following April, when Confederate troops in Charleston, S.C., shelled Fort Sumter and started the Civil War. During those tense five months, Lincoln hoped, despite a pro-slavery mob’s attempt to stop Congress from tallying the vote and decades of physical violence within the Senate and House chambers , that the war might narrowly be avoided.

At the start the outgoing president, James Buchanan, is maddeningly passive in the face of cabinet resignations and seceding states, including South Carolina, where Confederates would see federal forces arriving at Fort Sumter as nothing short of a foreign incursion. “They ought to hang him,” an astonished Lincoln privately remarks, bewildered by Buchanan’s talk of surrendering federal forts.

Publicly, Lincoln maintains a determined yet conciliatory posture even as Larson’s other hero, Maj. Robert Anderson, a former enslaver and the fort’s commander, is under siege by thousands of better-armed Confederate soldiers and running out of supplies. Anderson and his 80 or so men pray for the best while cornered by the worst.

The stage is set. “I invite you now to step into the past,” Larson writes, and he means it. He wants you not just immersed, but engulfed. A Larson book is like the Dead Sea: The extraordinarily dense level of details — “On the stillest nights, at 9 o’clock, Major Anderson could hear the great bells in the distant witch-cap spire of St. Michael’s Church, bastion of Charleston society where planters displayed rank by purchasing pews” — usually allows readers to float on his narrative without much effort.

I tried my best not to swim, but on more than one occasion, I almost drowned from exertion, especially in the incredibly banal final stretch. And still there was something lacking in the book’s 565 pages: Nary a Black person, free or enslaved, is presented as more than a fleeting, one-dimensional figure. Frederick Douglass, a leading abolitionist and standard of histories of the era, warrants no more than a mention.

Black people are primarily nameless victims of an antagonistic labor system that’s causing a political crisis among white Americans. At one point, to differentiate this near monolith, Larson employs the term “escape-minded Blacks,” a curious turn of phrase that suggests there were “bondage-minded Blacks.”

The flattening is all the more noticeable because so many other characters are given shape. Larson offers a cradle-to-coffin biography of the South Carolina congressman-turned-Confederate James Hammond. Lengthy passages on Hammond’s “five-way affair” with (read: sexual abuse of) four teenage nieces are followed by a short, unnervingly euphemistic account of the enslaved women he (and his son) raped and impregnated: Hammond made Sally Johnson “his mistress,” and when her daughter Louisa turned 12, he “made her his mistress as well.”

Larson’s magnolias-under-the-moonlight word choice is inadequate. Sally and Louisa were damned to Hammond’s forced labor camps, along with more than 300 enslaved people who “had a penchant for dying.” But they got Christmas off, Larson notes; Hammond “held a barbecue” and, on one occasion, “gave a calico frock to every female who had given birth.”

“Cotton is king,” Hammond declared in 1858. The phrase would come to epitomize the newly minted Confederacy’s misguided confidence in both its economic domination and the war. The greatest echo of the present day in “The Demon of Unrest” may be Larson’s newcomer ego, a swaggering disregard for the difference between the shopworn and the truly complex that leads straight into the pitfalls of nostalgia and hubris.

At his Jan. 6 anniversary rally, a century and a half after the Civil War ended, Trump suggested that Lincoln could have negotiated his way out of the conflict and avoided the killing — but only at great personal cost. “If he negotiated it,” Trump observed, “you probably wouldn’t even know who Abraham Lincoln was.” What better reason could there have been to fight?

THE DEMON OF UNREST : A Saga of Hubris, Heartbreak, and Heroism at the Dawn of the Civil War | By Erik Larson | Crown | 565 pp. | $35

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