AN ARTICLE ON

EXPECTAION GAP REGARDING AUDIT IN BANGLADESH: A COMPREHENSIVE STUDY

Department of Accounting & Information Systems Faculty of Business Studies University of Dhaka

01 02 03 04 05 06 Name Md. Mahadi Hasan Md.Assigned by: Ranjan Kumar Mitra Lecturer Department of A&IS Faculty of Business Studies University of Dhaka Submitted by: Sl No. Shamim Raihan Md. 2011 . Rabbiul Hasan Piyas Chandra Das Faculty of Business Studies University of Dhaka ID 15120 15121 15126 15132 15157 15169 Department of Accounting & Information Systems Date of Submission: 20 March. Enamul Haque Sushanta Chandra Mondal Md.

Table of contents Sl no. 01 01 02 03 04-11 12 13 14 . 01 02 03 04 05 06 07 10 Abstract Introduction Literature Review Methodology Data Analysis Findings Recommendation Conclusion References Topics Page no.

Auditing expectation gap is the difference between what auditors actually do and what third parties expect. Furthermore in last decades there has been a great number of accounting scandals throughout the world specially Enron. We will also covet the evidence of expectation gap in Bangladesh. Expectation gap. Moreover in this modern era.user. So our objective in this study is to determine the expectation gap between auditors and the thirds parties especially in the present context of Bangladesh. auditors work as a bridge to fill up the communication or information gap between entities. For this purpose sample group were selected from different groups of people with different background. through their authentication reliability and correctness of financial reporting/statements. In this process. management and end-users of published financial reports. Keywords: Audit. auditing authenticate the true and fair view of the information provided by the accountants through its authentication based on professional code of ethics and regulation. Third parties Introduction Accounting and auditing are the most critical and integrated parts of any types of organization globally who deals with monetary transactions. World com Parlmalat and Famee Mac has drown much more attention regarding the auditing service. .Abstract The expectation gap is a serious concern for professionals Accountant through the world. the recipients of financial statements have become more sophisticated so they demand from an audit function then only attestation of the financial reports. This paper/study aims at to investigate the existence of an audit expectation gap and to measure the magnitude of audit. Throughout the paper we will cover the evaluation of audit and causes of audit expectation gap. Accounting keeps all of the monetary transactions as a means of providing information through financial reporting to end .

2nd year. 2004 they studied the existence of expectation gap among the students those who completed one course on Auditing and other groups completed two courses on Auditing.27). The overall results were like that auditing education did not significantly reduce the expectation gap. Rehan Fowzia (2010). having and not having auditing course. Siddiqui. Siddiqui.T Nasreen. The findings of this study were as usual as students having completed more courses on auditing have less expectation gap than those of others. However this study was very contradictory with some other research put on by several integration researchers. J. the study was aimed at to find out the similarities and dissimilarities of audit expectation gap among auditor and investor between two countries and finding magnitude of auditor responsibility. (p. . According to his concept expectation gap is the difference between (a) what the general people and financial statement users the responsibilities of auditors to be (b) what auditors believe their responsibility are? Porter (1993) gives a detail look on the component of expectation with structural Wags. Mahadeves wamy and Salehi (2008). for example Bailey et al (1983). Amin. RR and Innes (1998). Pierce and Kilcommins (1996).Literature review The concept of the expectation gap was firstly defined by Liggio in 1974. However the findings of these study where surprising. because the study found that expectation gap is greater among the students those who completed two courses than the students completed one courses. This very critical issue was also studied what the perspective of two countries that means comparison of audit expectation gap between two countries. They mainly tried to find out the effect or rule of auditing education on expectation gap. Kilcommins studied 6 types of students Categories into 1st year. Al-Amin and T Nasreen(2004). The findings of this study were that there were not much more differences in the responsibility of auditor of two countries. This study is not new in our country's several studies were conducted on this issue in our country for example Chowdhury.

We have also taken help from different websites. First part contains personal information of respondents and second part contains some statements where an expectation gap prevails. . Moderately Agree=2. Agree=3. & No Opinion=0 The above scale has been taken according to BSA (Bangladesh Auditing Standards). The scale is as follows: Strongly Agree=1. The highest rank is 5 and the lowest rank is 0 for no opinion. For primary sources we have prepared a questionnaires consisting of 20 questions.Methodology To conduct this study we have collected data from both the primary and secondary sources. For secondary data sources we have go through several journals. and articles of different research published in different times. For finding out the expectation gap we have assigned the base point according to the established criteria given in BAS. However in order to conducting the study we have taken the following scale to measure the level of expectation gap among different relevant parties. business background and non-business background. Disagree=4. research papers. Strongly Disagree=5. auditor/articles student etc. For coming to a decision we have not chosen any special groups but we have conducted this survey in every class related people. We have surveyed among 100 people consisting of investor.

57 -.96 4.67 1.67 1.67 1.04 .91 3.91 4.33 1.67 -.09 1.09 . The Auditor is responsible for maintaining accounting records The Auditor is responsible for preventing fraud The Auditor is unbiased and objectives The degree of assurance given by the Auditor is clearly indicated in the audit report The Audited Financial statements provide an assurance regarding the performance of audited firm 5 5 5 5 5 1.33 3.33 3.33 3. In first segment we will discuss our findings regarding expectation gap of non-commerce student.33 1.87 3. in third segment we will show our findings regarding auditor and finally in fourth segment we will show our findings for general investor and in fifth segment we will show our findings combinedly on all of the people we have taken as sample and surveyed.Data analysis and Findings For better understanding we will discuss our findings in five segments.64 3. in second segment we will discuss our findings regarding commerce student. Segment 1: Expectation gap on non-commerce student For non-commerce student our findings are as follow: Table 1 Base scorea Averageb Gapa -b Statements The Auditor can give Absolute Assurance The Auditor checks every single the transection The Auditor is responsible for detecting all frauds The Auditor is appointed by Government The Auditor ensures internal control of an organization.13 5 5 1 1 5 .36 1.

07 3.33 3. Even they think that auditors is appointed by government. From the above table we can say that non commerce student have expectation gap but this gap is more or less it will be decided after evaluating the all of the cases for the different respondendent groups.98 -1.67 5 5 1 5 5 5 The above table shows that in every cases the non commerce student have huge expectaion gap.88 1.02 2.39 1.66 3. They make the auditor responsible to prevent fraud as they have no idea about the audit risk and audit failure so they think that auditor is responsinble for both audit failure and audit risk. However expectation gap is more in some cases for example most of the non commerce student think that the auditor will give absulate or 100% assurances and auditors cheack every single tranjaction. We see a huge gap in case of the statements auditor is responsible for detecting all fraud.61 3.33 4.07 1.The Auditor is responsible for both Audit failure & Audit Risk The auditor is responsible for preparing Financial Statements Conduct of 100 percent examination in audit proceed Right procedures followed before authenticating financial statements Giving assurance that company is in good financial health Reporting all detected frauds and thefts to the relevant authority The auditor will Safeguard the assets of the company 5 .67 1.34 1.12 3. .

21 2.5 2.36 2.96 4.14 2.43 2.79 1.82 3.29 1. but the gap is not near to zero or .64 1.5 1.43 -1. The Auditor is responsible for maintaining accounting records The Auditor is responsible for preventing fraud The Auditor is unbiased and objectives The degree of assurance given by the Auditor is clearly indicated in the audit report The Audited Financial statements provide an assurance regarding the performance of audited firm The Auditor is responsible for both Audit failure & Audit Risk The auditor is responsible for preparing Financial Statements Conduct of 100 percent examination in audit proceed Right procedures followed before authenticating financial statements Giving assurance that company is in good financial health Reporting all detected frauds and thefts to the relevant authority The auditor will Safeguard the assets of the company 5 5 5 5 5 5 5 1 1 5 5 5 5 1 2.07 1.5 1.57 2.5 3.04 .64 3.5 3.36 2.71 3.86 Averageb Gapa -b 5 5 5 Here in the above table we see among commerce student expectation gap is prevails but the gap is much more less than the non commerce bacground student.5 2.79 2.57 2.Segment 2: Expectation gap on commerce student Table 2 Statements Base scorea The Auditor can give Absolute Assurance The Auditor checks every single the transection The Auditor is responsible for detecting all frauds The Auditor is appointed by Government The Auditor ensures internal control of an organization.43 2.93 3.79 2.21 2.29 1.57 -.21 2.18 1.71 3.

49 4. The Auditor is responsible for maintaining accounting records The Auditor is responsible for preventing fraud The Auditor is unbiased and objectives The degree of assurance given by the Auditor is clearly indicated in the audit report The Audited Financial statements provide an assurance regarding the performance of audited firm The Auditor is responsible for both Audit failure & Audit Risk The auditor is responsible for preparing Financial Statements Conduct of 100 percent examination in audit proceed 5 .14 -.28 1.86 1.88 1.39 4.64 3.bellow one this is happened because among commerce student all of the student have not completed the auditing cource some of them completed one cource on auditing some completed two cources on auditing.36 5 5 5 5 5 1.55 4.63 Averageb Gapa b 3. But in the statements the auditor is responsible for preventing fraud the gap is much more than any other sector of gap.59 4.61 5 2.22 5 .72 3.46 3.04 2.41 .37 3.51 5 1 1 .54 1.78 3.96 5 1.37 .55 5 1. Segment 3: Expectation gap on investor Table 3 Statements Base scorea The Auditor can give Absolute Assurance The Auditor checks every single the transection The Auditor is responsible for detecting all frauds The Auditor is appointed by Government The Auditor ensures internal control of an organization.88 -.63 1.

Most of the cases the investor have no knowldge regarding the auditing and there is huge expectation gap among the general investors. Segment 4: Expectation gap on Articleship student .08 3.92 1. in most of the cases investors think auditors checks every single tranjaction and the auditor provide an assurance regarding the performance of the of the audited clients. The result is really a worring matter for our country.47 1.Right procedures followed before authenticating financial statements Giving assurance that company is in good financial health Reporting all detected frauds and thefts to the relevant authority The auditor will Safeguard the assets of the company 1 1.82 2. Investor also think auditors do 100% examination of the audited organization.47 3.08 -.92 5 5 5 Above table shows the expectation gap among the investor.18 3.

64 .06 1.23 . The findings of this survey are really surprising .69 Averageb Gapa -b 5 5 5 Above table shows the result of our survey on expectation gap on articles student those who have joined in different CA firm in our country. The Auditor is responsible for maintaining accounting records The Auditor is responsible for preventing fraud The Auditor is unbiased and objectives The degree of assurance given by the Auditor is clearly indicated in the audit report The Audited Financial statements provide an assurance regarding the performance of audited firm The Auditor is responsible for both Audit failure & Audit Risk The auditor is responsible for preparing Financial Statements Conduct of 100 percent examination in audit proceed Right procedures followed before authenticating financial statements Giving assurance that company is in good financial health Reporting all detected frauds and thefts to the relevant authority The auditor will Safeguard the assets of the company 5 5 5 1 4.09 5 4.69 5 5 5 5 5 4.46 .23 -.94 3.99 1.85 .08 .38 1.77 4.96 4.69 4.03 -.31 .92 4.31 .09 .85 3.23 1.97 1.36 5 3.Table 4 Statements Base scorea The Auditor can give Absolute Assurance The Auditor checks every single the transection The Auditor is responsible for detecting all frauds The Auditor is appointed by Government The Auditor ensures internal control of an organization.01 5 1 1 4.62 -.85 1.04 .31 .38 .54 4.15 4.62 4.

54 2.43 2.because the articles student have expectation gap in some cases.1 2.97 3.25 3. Though the gap is not profound it is almost near to 1 or 0.03 1.78 2.54 -.68 2. Segment 4: Expectation gap on in all related third parties (Among 100 samples) Table 5 Statements Base scorea The Auditor can give Absolute Assurance The Auditor checks every single the transection The Auditor is responsible for detecting all frauds The Auditor is appointed by Government The Auditor ensures internal control of an organization.4 3. The reason for this might be the student of articles student might be on the very beginning of their CA course in knowledge level.75 1.2 2.01 1.9 2.32 1 5 2.23 2. The Auditor is responsible for maintaining accounting records The Auditor is responsible for preventing fraud The Auditor is unbiased and objectives The degree of assurance given by the Auditor is clearly indicated in the audit report The Audited Financial statements provide an assurance regarding the performance of audited firm The Auditor is responsible for both Audit failure & Audit Risk The auditor is responsible for preparing Financial Statements Conduct of 100 percent examination in audit proceed Right procedures followed before authenticating financial statements Giving assurance that company is in good financial health 5 5 5 5 1 2.01 2.79 3 -.51 2.76 -1.21 2 1.57 2.77 5 5 5 5 5 5 5 1 2.49 2.24 2.8 2.6 1.78 Averageb Gapa -b . So they don’t have complete knowledge of auditing.

36 2. In this very stage ii can be easily understandable that the expectation gap is more prone especially the people who have no or minimum idea of auditing and auditing procedure. 1994) are contradictory with the journal of Al-Amin. We have conducted our research work to identify the fundamental issues regarding the expectation gap in auditing in Bangladesh.2 From the above table it very clear to us that expectation gap is very acute in our country. 1996. Javed & Taslima. Recommendation .64 2. 1996. This phenomenon can easily describe as that the situation on which the journal were written was different than that of now. At the same time the educated users are less likely to demand the higher levels of audit assurance (Epstein & Geiger. But the matters of regret that these two comments (Pierce & Kilcommins. find that the people or student who have completed at least a single course on auditing have significant reduction in the misunderstanding of audit regulation. 2004. After examining the all above table we see that expectation gap much higher among the non-commerce student and general investor who don’t have any knowledge of auditing.8 2. and Epstein & Geiger. 1994). Overall it was found that auditing education significantly reduces the expectation gap (table 4). Our findings are matched with some renowned researcher conducted study on it. For example Pierce & Kilcommins.Reporting all detected frauds and thefts to the relevant authority The auditor will Safeguard the assets of the company 5 5 2.

directors and the respective firm. This overall procedure shall be clear to the users by giving proper disclosures regarding the separate duties and responsibilities of both two types of auditors. like  Audit is based on sampling basis  The procedure has significant influence of judgments & estimates  Give reasonable assurance on financial statements  Identify only material misstatement. In the audit committee there will be two audit teams one is for internal auditing another is for external auditing. Engagement Letter: In the engagement we should make a clear indication regarding the role and responsibilities of auditors.Throughout this very study we can come to conclusion regarding the key findings that is what can we do for narrowing expectation gap. There are some ways out of the expectation gap these are given bellow: Expending the Audit Report: To remove the Expectation gap we can expand the Audit report by the following steps.  By setting out a clear & precise responsibilities of auditors and directors  Clarify the Auditing procedure. Conclution . Audit Committees: We can reduce the expectation gap of the respective users by establishing Audit committee in the company structure.

regulatory mechanism and society at large. But the blame should not be placed entirely on the auditors as the nature and objectives of auditing are thought differently between the public and auditors. The Study shows that the audit expectation gap exists among almost all of the related parties including the person who have auditing knowledge. auditors’ role and responsibilities will help to narrow the audit expectation gap. However increased litigation and criticism of auditors has express those auditors are facing a liability and credibility crisis (Russell 1986).This Study provides evidence about the nature of an audit expectation gap between auditors and users in Bangladesh. These differences in perceptions have created the audit expectation gap. At last we can say that audit expectation gap is the result of deficiencies in audit. audit process. auditor independence. . The study also reveals that educating the public about the objects of an audit. This differences or gap shall be addressed as soon as possible otherwise it might have long term impact in our overall macro-economic variables. One of the key findings of this study is that the people having no auditing knowledge have more expectation gap than those of others who have auditing knowledge.

K. (1974). . DU Journal of marketing. The expectation gap between users' and auditors' materiality judgments in Denmark Salehi. “Audit Expectation Gap in Bangladesh: The Role of Auditing Education in Narrowing the Gap”. V. Kilcommins. Salehi(2008) Gap in Auditor Responsibilities: Comparison between India and Iran Audit Expectation M. "The audit expectations gap: the role of auditing education". Journal of Contemporary Business. "The expectation gap: the accountant's waterloo". June.(1998). Pierce. Azary (2009) Audit Independence and Expectation Gap: Empirical Evidences from Iran Mahadevaswamy.D.Rostami(2009) AUDIT EXPECTATION GAP: INTERNATIONAL EVIDENCES Bailey.H and Shield 1983.” International Journal of Auditing. Vol.R.E.27-44. J. Mansoury. M. and Innes. pp. Effect of audit report wording changes on the perceieved messages. Journal of auditing research. No.References Chowdhury. Siddiqui. Vol. Nasreen Taslima (2006). C.” A Qualitative Analysis of the Audit Expectations Gap in the Public Sector of Bangladesh. 355-70. 2006. 13. J. Amin and Nasreen(2004) The Presence of a reasonableness gap ? Student perceptions regarding Audit & the role Audit Education in Bangladesh Leif Højskov (1998) . 3 No. 9..3.Salehi a. pp-247-266 Liggio. (1996).R. Dublin City University Business School Research Papers 1995-1996. B. No.

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