Fotoh Lazarus Elad

The Impact of Audit Education

on the Audit Expectation Gap

Evidence from Civilekonom Students in

Sweden

Business Administration
Master’s Thesis
30 ECTS

Term: Spring 2017

Supervisor: Dan Nordin
Acknowledgements
I would like to extend my profound gratitude to my supervisor, Ass. Prof. Dan
Nordin for his immense guidance and commitment throughout this thesis
writing process. Dan provided insightful and valuable feedback which had a
positive effect on my critical thinking and analytical skills. I equally owe a debt
of gratitude to Katharina Rahnert for her constructive comments and time
spent in translating my questionnaire to Swedish.

Furthermore, I am thankful to all the survey participants of this thesis.

Without your willingness to participate in this study, this thesis will never have
come to fruition.

I am immensely indebted to my family for all the encouragement and moral

support throughout this thesis writing phase, and throughout the entire
Master’s program in Accounting and Control. Your positive energy enabled
me to assail all obstacles.

Above all, I am thankful to the Almighty God for the graces, strength, and
perseverance bestowed on me throughout my studies.

Karlstad, June 2017.

Fotoh Lazarus Elad

3
Abstract
There is considerable evidence of the existence of audit expectation gap
between auditors and the public in Sweden. However, conflicting views exist
regarding the role of audit education in narrowing this gap. This thesis,
therefore, aims to investigate if the teaching of audit courses for civilekonom
students contributes in narrowing the expectation gap resulting from the
misunderstanding of audit regulations as contained in ISA and ABL.

A survey questionnaire containing seventeen semantic differential belief

statements measured using the five-point Likert scale was completed by four
groups of students; first-year civilekonom students with/without an audit
education background and, final-year civilekonom accounting students
with/without an audit education background (n=137). The questionnaire
covered topics on; auditors’ responsibilities, audit reliability, and decision
usefulness.

The results of the study indicate audit education partially (at α 0.05) had an
impact in reducing the AEG on the responsibilities of auditors especially on
issues related to; auditors’ responsibility in maintaining accounting records,
management’s responsibility for preparing the annual financial statements and
auditors’ judgment in selecting audit procedures. However, audit education
had no impact on auditors’ responsibilities in detecting fraud, audit reliability
and reliability of financial statements, and decision usefulness. Furthermore,
the limited sample size, low response rate and use of convenience sampling
may affect the generalizability of the results. Additionally, the Cronbach Alpha
would have been more reliable if more participants were involved.

This study concludes by calling on educational institutions in Sweden to

update their accounting curriculum to encompass topics related to the nature,
scope, and limitations of audits based on ISA and ABL. Moreover, this study
recommends the audit profession and regulators to design and implement
policies aimed at improving users understanding of the nature, scope, and
limitations of an audit through audit education, refresher courses and other
forms of audit-user communication. This study extends previous studies on
the AEG by ascertaining the role of audit education in narrowing the AEG.

Keywords: Audit Education and Function, Users knowledge, Audit

Expectation Gap, International Standards on Auditing, Swedish Company
Act, Sweden.

4
Abbreviations

AEG: Audit Expectation Gap

AICPA: American Certified Public Accountants

ABL: Swedish Company Act

AA: Auditors’ Act (Revisorslag 2001:883)

IESBA: International Ethics Standard Board for Accountants

IAASB: International Auditing and Assurance Standards Board

CS1: First-year Civilekonom Students (Not enrolled for any audit course)

CS2: Firs-year Civilekonom Students (Enrolled for at least one audit course)

CS3: Final-year Civilekonom Student-Accounting (Enrolled for audit courses)

CS4: Final-year Civilekonom Student-Accounting (Not enrolled for any audit

course)

LLC: Limited Liability Company

SRS: Swedish Association of Auditors

FAR: The Swedish Institute of Authorized Public Accountants

GAAS: Generally Accepted Auditing Standards

SMEs: Small and Medium-Sized Enterprises

5
Table of Contents
1. Introduction ................................................................................................. 9
1.1. Background of the Study ...................................................................... 9
1.2. Problem Statement.............................................................................. 12
1.3. Research Aim and Objective .............................................................. 13
1.4. Research Questions ............................................................................ 14
1.5. Significance and Motivation of Study ................................................ 14
1.6. Delimitation of Study ......................................................................... 15
1.7. Structure of Study ............................................................................... 15
2. Theoretical Framework and Hypotheses Development............................. 16
2.1. Definition of the Audit Expectation Gap............................................ 16
2.2. Categorization of the Audit Expectation Gap..................................... 17
2.3. Factors Affecting the Expectation Gap .............................................. 18
2.3.1. The Complication of the Audit Function .................................... 19
2.3.2. The Audit Conflict of Interest .................................................... 19
2.3.3. Hindsight Evaluation of Audit Performance.............................. 20
2.3.4. Time gap to responding to the changing Public’s Audit
Expectation ............................................................................................ 20
2.3.5. The Self-Regulated Nature of the Audit Profession .................. 21
2.3.6. The Unreasonable Expectation of the public ............................. 22
2.4. Remedies to the Audit Expectation Gap ............................................ 22
2.4.1. The Defensive Approach (Education) ....................................... 22
2.4.2. The Constructive Approach ....................................................... 24
2.4.2.1. Expanding the Scope of Audits ....................................... 24
2.4.2.2. Restructuring Audit Methodologies .............................. 25
2.4.2.3 Expanding Auditors’ Responsibilities and Performance 25
2.5. Global Evidence of the Audit Expectation Gap ................................. 26
2.6. Hypotheses Development ................................................................... 28
3. Audit Practice and the Expectation Gap in Sweden .................................. 30
3.1. Audit Background and Practice in Sweden ........................................ 30
3.2 Duties of Auditors based on the Swedish Company Act (ABL) of 2005
................................................................................................................... 33
3.3. Audit Report Format Based on ISA-700 ............................................ 34

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 3.4. Audit Expectation Gap in Sweden ......................................................36
4. Methodology ..............................................................................................38
4.1. Research Philosophy and Approach ...................................................38
4.2. Research Design and Strategy.............................................................40
4.3. Data Collection....................................................................................41
4.3.1. Questionnaire .............................................................................41
4.3.2. Sample Population .....................................................................42
4.4. Quality of Instruments ........................................................................43
4.4.1. Validity.......................................................................................43
4.4.2. Reliability ...................................................................................44
4.5. Analysis ...............................................................................................44
4.6. Ethical Considerations ........................................................................45
4.7. Overview of questionnaire Statements for the Audit Expectation Gap
....................................................................................................................45
5. Results ........................................................................................................54
5.1. Demographic Information of Usable Respondents .............................54
5.2. Results from Semantic Differential Belief Statements .......................56
5.2.1. Auditors’ Responsibilities ..........................................................56
5.2.2. Reliability of Audits and Audited Financial Statements ............60
5.2.3. Usefulness of Audited Financial Statements..............................64
5.3. Hypotheses Testing .............................................................................66
6. Discussion ..................................................................................................69
7. Conclusion .................................................................................................75
7.1. Summary .............................................................................................75
7.2. Limitations ..........................................................................................76
7.3. Recommendations ...............................................................................76
References ........................................................................................................77
Appendices .......................................................................................................87
Appendix 1. Spearman’s Rank Correlation Coefficient ............................87
Appendix 2. Cronbach’s Alpha ..................................................................88
Appendix 3. Pilot Survey Instrument .........................................................89
Appendix 4. Survey Instrument .................................................................92

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 List of Figures
Figure 1: Categorization of the Audit Expectation-Performance Gap ........... 18

List of Tables
Table 1: Descriptive Statistics of Respondents .............................................. 55
Table 2: Demographic Information of Respondents ...................................... 55
Table 3: Auditors’ responsibility mean distribution (CS1 and CS3) ............. 57
Table 4: Auditors’ responsibility mean distribution (CS1 and CS2) ............. 58
Table 5: Auditors’ responsibility mean distribution (CS3 and CS4) ............. 59
Table 6: Audit reliability mean distribution (CS1 and CS3) .......................... 61
Table 7: Audit reliability mean distribution (CS1 and CS2) .......................... 62
Table 8: Audit reliability mean distribution (CS3 and CS4) .......................... 63
Table 9: Decision Usefulness mean distribution (CS1 and CS3)................... 64
Table 10: Decision Usefulness mean distribution (CS1 and CS2) ................ 65
Table 11: Decision Usefulness mean distribution (CS3 and CS4) ................ 65

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1. Introduction
This chapter presents an overview of this research project which encompasses; the background
of the study, problem statement, research aim and objective, research questions and concludes
with a structure of the thesis.

1.1. Background of the Study

Over the past three decades, Anglo-Saxon nations have experienced an

increasing rate of audit frauds, financial scandals and corporate failures which
have kept the debate of the audit expectation gap active in the audit
profession, regulatory bodies, financial statement users (Dewing & Russell
2002) and even boardrooms. The Accounting profession faced widespread
criticism from the public between 1970 and 1980 following numerous
corporate scandals, audit failures and lawsuits against many accounting firms
(Ali et al. 2008). The debacles of Enron, WorldCom, Tyco International,
Parmalat, Arthur Andersen, etc. and the financial crisis of 2008 further
exacerbated the audit expectation gap debate bringing it to the global stage
with new waves of questions regarding the duties and responsibilities of
auditors. As such, the audit profession has paid considerable attention to the
AEG considering that it decimates the legitimacy of the audit profession
(Ruhnke & Schmidt 2014).

The audit expectation gap has been in existence for the past century
(Humphrey et al. 1993). Johansson (2005) equates the existence of the AEG
to the period auditing started even though, research in this area started only
some forty-three years back with the work of Liggio (1974), who established
the existence of an expectation gap. Humphrey and Turley (1992) further trace
the audit expectation gap to the 19th century with the commencement of
company auditing. During this period, auditors provided almost absolute
assurance against fraud and intentional mismanagement (Epstein & Geiger
1994). Although the audit profession has evolved from detecting fraud and
error and verifying all transaction, to the provision of reasonable assurance on
the truth and fairness of financial statements, the unreasonable expectations
from users have remained unchanged, thus aggravating the AEG (Fadzy &
Ahmad 2004).

The numerous corporate scandals, audit failures and lawsuits against

accounting firms were the main catalysts precipitating research on the AEG as

9
the credibility of auditors were increasingly being questioned (Porter 1993).
The AEG is related directly to the purpose, nature, value and effects of audits
(Humphrey et al. 1993). Studies conducted in Anglo-Saxon countries such as;
the US, UK, Ireland and Australia (Baron et al. 1977; Humphrey et al. 1993;
Robinson & Lyttle 1991; Monroe & Woodliff 1994) shows the extensive
nature of the AEG. Nonetheless, the AEG is not typical only in Anglo-Saxon
countries with greater audit scrutiny and where auditing is a market demand
but across the globe (Enes et al. 2016).

Recent studies show the existence of an AEG in the Netherlands, Malta, Iran,
Egypt, China, Singapore, Lebanon, Malaysia, Bangladesh (Hassink et al. 2009;
Desira & Baldacchino 2005; Salehi et al. 2009; Dixon et al. 2006; Lin & Chen
2004; Best et al. 2001; Sidani 2007; Fadzly & Ahmad 2004; Siddiqui et al.
2009). The commonality amongst these studies is the perception of the public
about auditors’ independence and auditors’ fraud prevention and detection
responsibilities. Furthermore, several studies (Gometz 1982; Brendahl &
Forsbery 2011; Kristoffersson et al. 2009; Jepsson & Jönsson 2007;
Magnusson & Olofsson 2007; Johnsson & Nilsson 2011; Magnusson &
Olofsson 2007; Lehman & Nordenson 2014; Madsen 2013; Forsberg &
Dellby 2016) have established the existence of an AEG in Sweden between
auditors and financial statement users broadly on issues related to auditors’
responsibilities, reliability of audits and the usefulness of audited financial
statements.

While Humphrey et al. (1993) underscore auditors’ independence to be at the

heart of the expectation gap, Hassink et al. (2009) on the other hand highlight
auditors’ involvement in fraud cases as being detrimental to the reputation and
image of the profession. In establishing the existence of the AEG in Portugal,
Almeida (2012) underscores users’ dissatisfaction with auditors’ performance
as the underlying reason for the gap. In general, the AEG is particularly far-
reaching on issues related to; auditors’ fraud prevention responsibility,
maintenance of accounting records and auditors’ judgment in selecting audit
procedures (Dixon et al. 2006). Schelluch and Gay (2006) equally note that
often the AEG is centered on auditors’ duties and responsibilities, audit quality
function, the nature and meaning of audit report content, the regulation and
structure of the audit profession and the ability of auditors to communicate
various levels of assurance.

From the audit profession's perspective, the prevalence of the AEG is because
“the investing public expects too much and remains largely ignorant as to the

10
precise nature, purpose, and capabilities of the audit functions” (Humphrey et
al. 1993, p.395). As a result, the audit profession focused on correcting users’
expectation as a means of narrowing the AEG (Sweeney 1997). Consequently,
the audit profession faced a backlash from some researchers for taking self-
protective steps rather than proactive measures to close the AEG (Sweeney
1997). It is against this backdrop that, Porter et al. (2005) recommended
determining society’s expectation of auditors, determining reasonable duties
auditors can perform and determining the extent to which such reasonable
expectations can be satisfied as important considerations to narrowing the
expectation gap. Prior exploratory studies on the AEG equally championed
the notion that, the AEG resulted from the “unreasonable expectations” of
the public (De Martinis & Burrowes 1996) prompting Sikka et al. (1998) to
highlight this bias in research on the AEG which advocated that, the surest
means to eliminate the AEG is by transferring auditors’ understanding of their
duties and responsibilities to the public. However, De Martinis and Burrowes
(1996) noted that this bias has been reducing with the emphasis on current
research focusing on issues related to the performance gap of auditors as a
contributing factor to the AEG.

Furthermore, previous studies on the AEG focused on the causes of the

expectation gap. Meanwhile, recent studies focus on areas where the gap is
most intense (Sidani 2007). Such areas of the intensity of the AEG include; the
nature of audit reports and the meaning of audit report messages, the quality
of audit function, the structure and regulatory process of the audit profession,
(Humphrey et al. 1993). Dixon et al. (2006) further note; auditors’ fraud
detection responsibilities, auditors' responsibility for maintaining accounting
books and selecting adequate audit procedures as those areas with an intensity
of AEG. However, several authors (Monroe & Woodliff 1993; Best et al.
2001; Lin & Chen 2004; Fadzly & Ahmad 2004; Siddiqui et al. 2009; Dixon et
al. 2006) have classified the AEG into three parts including; auditors’
responsibilities, reliability of audited financial statements and the usefulness of
audited financial statements. Other vital areas with the expectation gap
include; going concern, independence, and duty of care (Sweeney 1997).

11
 1.2. Problem Statement

Current audit literature confirms the existence and the prevalence of the AEG
resulting from society’s unreasonable expectations of auditors which most
often exceeds regulatory and standard requirements (Hassink et al. 2009) and
which are frequently unrealistic. The expectation gap between users and
auditors results mainly from ideological differences between users and auditors
regarding the duties of auditors and the objectives of financial statements
(McEnroe & Martens 2001). Some users incorrectly perceive the unqualified
audit opinion to mean the entity is completely free from material error. By the
same token, Salehi (2011) underscores that some users mistakenly perceive the
functions of the auditor to include; interpreting financial statements in a
manner which aids users in investment decisions, digging into the company’s
financial affairs, performing significant surveillance on management and
detecting and preventing fraud. Eden et al. (2003) further emphasize that
financial statement users often expect the auditor to detect fraud and error and
evaluate management’s performance, whereas auditors contend their duties
involves evaluating the truth and fairness of financial statements. Furthermore,
many investors believe auditors should assess all documents and records of a
company with the primary objective of detecting fraud and error (Messier et al.
2011). Sikka et al. (1998, P.299) note that such unreasonable expectations of
the public are detrimental to the credibility and general reputation of auditors.
These misperceptions about the duties of auditors mainly account for the
expectation gap.

So far, several studies have proposed measures which could significantly

narrow down this gap. For example, Koh and Woo (1998) recommend the
expanded audit report which gives users a complete understanding as to the
scope, extent, timing and significance of the audit function. They further
recommend the use of decision aids by auditors which further enhances the
quality of audits. Meanwhile, Gay et al. (1998) suggest the improvement of the
wordings of the audit report for it to be more understandable to users and to
provide assurance to the task done by the auditor. Humphrey et al. (1993)
equally recommended the constructive approach of narrowing the AEG which
entails changing audit activities to suit users’ expectation. The authors further
proposed the modification of phrases and the standardization of the audit
report to reduce inconsistencies and complexities of the audit report to make
it more understandable to stakeholders. Lastly, Humphrey et al. (1993)
recommended the defensive approach which entails educating the public

12
whose expectations about the functions of the auditors are sometimes
unreasonable due to unawareness of the real responsibilities of the auditor.

Prior and contemporary studies (for example, Humphrey et al.; 1992; Sikka et
al., 1992; Porter & Gowthorpe 2004; Hassink et al. 2009; etc.) have highly
recommended education as a means of narrowing the AEG. While some of
these studies focus on educating the public (Hassink et al. 2009), others
concentrate on educating auditors (Porter & Gowthorpe 2004) as a means of
narrowing the AEG. Siddiqui et al. (2009) further underscore that previous
studies recommended; the monitoring of auditors' performance, improving
the audit quality control process, that audit reports should contain a disclosure
of the materiality standard and creating an independent oversight agency. This
recommendation is echoed in the work of Humphrey et al. (1993) in which
they emphasize the setting up of an independent office which deals with
auditors' independence and regulates the appointment of auditors in large
firms.

Despite the aforementioned recommendations and efforts implemented by the

audit profession, there are no signs of the AEG narrowing down (Sidani 2007,
Ali et al. 2008). Consistent with Sidani’s (2007) assertion, Johansson (2005)
highlights the existence of widespread evidence of the AEG widening all the
more. In their thesis, conducted in Sweden, Abrahamsson et al. (2005)
concluded that communication through a natural dialogue between auditors
and clients is the most efficient method of narrowing the expectation gap in
Sweden rather than the extent or level of education. Downplaying the
significance of audit education is a serious claim as several studies have
established the importance of audit education in narrowing the expectation
gap.

1.3. Research Aim and Objective

The AEG has received significant attention from academics and organizations
that have focused on its origin, nature, causes (Enes et al. 2016) and solutions.
So far few studies have empirically tested the effectiveness of the
recommended solutions. In the same vein, Sidani (2007) further notes that the
measures undertaken by professional and regulatory bodies have not received
extensive consideration. Educating the public is the most recommended
techniques to narrowing the AEG. Thus, this study is aimed at investigating

13
the impact audit education has in narrowing the AEG in Sweden. More
specifically this study seeks to determine the level of knowledge, first-year and
final-year civilekonom students possess about the responsibilities of auditors.
Furthermore, this study is aimed at determining if material differences exist
between the knowledge first and final year civilekonom students with and
without an audit education possess about the responsibilities of auditors.

1.4. Research Questions

Do final-year civilekonom students possess adequate knowledge on the roles

of auditors?

Do first-year civilekonom students possess adequate knowledge on the roles

of auditors?

Does education of students help breach the audit expectation gap?

1.5. Significance and Motivation of Study

This study is performed because of the significant importance currently

attached to the AEG which has been persistent (Fadzly & Ahmad 2004) and
because of its detrimental effects on the audit profession (Ali et al. 2008).
Furthermore, the AEG has been at the center of financial crises such as the
financial crisis of 2007 and accounting scandals such as the scandals of the
early millennium which saw the collapse of giant corporations such as Enron
and WorldCom. Therefore, there is need to analyze the effectiveness of
proposed solutions to narrow the expectation gap.

Audit education is the audit profession’s solution to closing the expectation

gap as the audit profession accuses users of having unreasonable expectations
about the responsibilities of auditors. Several researchers (Pierce &
Kilcommins 1996; Grambling & Schatzberg 1996, Fadzly & Ahmad 2004)
have sided with the audit profession’s narrative by highlighting the significance
of audit education in narrowing the AEG. Porter and Gowthorpe (2004) even
recommended that recent accounting and corporate scandals be included in
the curriculum of academic programs of schools. Siddiqui et al. (2009) further
note such audit courses could play a pivotal role in narrowing the AEG.
However, no study has so far examined the role of audit education in closing

14
the AEG gap in Sweden. The results of this study establish the extent to which
audit education is an effective means of narrowing the expectation gap.

1.6. Delimitation of Study

This thesis principally focuses on the impact of audit education on the AEG in
Sweden. This study is delimited to Sweden since it is based on prior studies
which established the existence of an expectation gap in Sweden. Thus, this
thesis will empirically test the effectiveness of audit education in narrowing the
expectation gap. The expectation gap in this thesis is limited to the
reasonableness gap. Therefore, this study does not encompass the deficient
performance gap and the deficient standard gap. Furthermore, all survey
participants were civilekonom students studying in Swedish Universities,
therefore; we expect their perception of the responsibilities of auditors to be
limited to the practice of auditing in Sweden. Additionally, the theoretical
framework has been delimited to reflect aspects relevant to this thesis.

1.7. Structure of Study

The remainder of this thesis is organized as follows; Section two presents an

in-depth analysis of the theoretical framework with a focus on the causes and
proposed solutions to narrowing the AEG with emphasis on audit education
and ends with hypotheses development. Section three presents auditing
practice in Sweden and establishes the AEG in Sweden; Section four further
presents the research methodology used in this study. Meanwhile, Section five
presents the results of the survey. Section six presents the discussion of the
findings and Section seven ends with the conclusion, limitations, and
recommendations for future research.

15
2. Theoretical Framework and Hypotheses Development
This chapter presents the conceptual framework of the AEG which includes; the definition of
AEG, Categorization of AEG, factors affecting the expectation gap, remedies to the
expectation gap, international evidence of the expectation gap and hypotheses development.

2.1. Definition of the Audit Expectation Gap

To understand the audit expectation gap concept, it is imperative that we

define the AEG. The AEG was first defined by Liggio (1974) who defined the
gap as, the difference in the performance expectation of the auditor, between
financial statement users and independent accountants. The Cohen
Commission (1978) further emphasizes that the gap involves the difference
between the public’s beliefs and desires and what the auditor can and should
reasonably accomplish. Porter (1993) disagrees with both definitions of the
audit expectation gap by underscoring the shallow nature of both definitions
as auditors may not be able to accomplish Liggio’s (1974) “expected
performance” and the Cohen Commission’s (1978) “can and should
reasonably accomplish” prescription. Porter (1993) thus refers to the AEG as
“audit expectation-performance gap.” Porter (1993) defines this gap as the
expectations society hold of auditors and auditors perceived performance by
society.

Similarly, Guy and Sullivan (1988) describe the AEG as the variation between
the public’s beliefs of auditors’ responsibilities and auditors’ beliefs of their
responsibilities. On the same note, Sikka et al. (1998) define the AEG as the
differences between the public’s expectations of an audit and what the audit
profession desires the audit objectives to encompass.

Two prominent and commonly used definitions of the expectation gap are;
AICPA's definition and Monroe and Woodliff's definition. The American
Institute of Certified Public Accountants (AICPA) (1993) defines AEG as “the
difference between what the public and financial statement users believe that
auditors are responsible for and what the auditors themselves believe their
responsibilities are” (AICPA 1993). Another frequently used definition is that
of Monroe and Woodliff (1993) who define AEG as the variation in beliefs
between the public and auditors concerning the duties and responsibilities of
auditors and the audit report content. Dennis (2010) goes an extra mile by

16
incorporating the "desire" aspect into the AEG. Thus, he defines the AEG as
the differences in beliefs and desires between users and auditors.

A contemporary definition of the AEG is provided by McEnroe and Martens

(2001) who define the AEG as the variation between what users of financial
statements recognize as auditors’ duties and what auditors consider their
responsibilities. In a nutshell, we define the AEG as the differences in beliefs
and desires between the auditor and the public regarding the duties and
responsibilities of auditors. We will use this definition as the working
definition of this thesis since it encompasses the key aspects of the definitions
presented above.

2.2. Categorization of the Audit Expectation Gap

In an attempt to establish the causes of the expectation gap in New Zealand,

Porter (1993) categorized the expectation gap into two major categories, the
reasonableness gap, and the performance gap. Porter defined the
reasonableness gap as the difference between society’s expectation of the
auditor and what auditors can reasonably be expected to achieve. Therefore,
this gap relates to society’s unreasonable expectations of auditors (Siddiqui et
al. 2009). Porter (1993, p.50) further defined the performance gap as the
“difference between what the society expects the auditors to achieve and what
they can reasonably be expected to accomplish.”

Porter (1993) categorized the performance gap into, the deficient standard gap
and the deficient performance gap. Porter (1993) defined the deficient
standard gap as the difference between the duties society reasonably expects of
auditors, and the current responsibilities of auditors as defined by audit
regulations, laws and other relevant statutes. This gap occurs when society
reasonably expects auditors to perform a task, but there are no current audit
regulations to fulfill these reasonable expectations. The deficient performance,
on the other hand, is the difference between the expected standards of
performance of auditors as required by the law and the perceived level of
performance by society of the auditor. This gap could be narrowed by
expanding and developing audit standards with responsibilities which society
reasonably expects of the auditor. Figure 1 below presents porter’s
categorization of the audit expectation-performance gap.

17
Figure 1: Categorization of the Audit Expectation- Performance Gap

Source: Porter (1993), p.50

Johansson et al. (2005) underscores that, the expectation gap turns to be lower
in owner-managed companies because of the high trust level existing between
the owner and auditor. Such high trust level is cultivated from the owner
developing an enhanced understanding about the audit process. Power (1999)
however underscores that the AEG has benefited auditors by contributing to
the economic success of auditors. Obradovic and Skopljakovic (2013) looks at
the AEG from a positive vantage point by highlighting the positive perception
some users had about the expectation gap. They further argue that small
businesses which possess inadequate knowledge about the duties of the
auditor are less likely to challenge the auditor, unlike large entities. We argue
that this benefit is limited to the extent that a scandal does not occur which
will only worsen the situation.

2.3. Factors Affecting the Expectation Gap

Prior studies have established factors that affect and contribute to the AEG.
An assessment of the causes of the expectation gap reveals that the gap results
mainly from; the complication of the audit function, the conflicting duties of
auditors, hindsight evaluation of audit performance, the time gap to
responding to the audit expectations of the public, the self-regulated nature of
the audit profession and the unreasonable expectations of the public. In this
section, we establish these factors from different theoretical perspectives to
gain an enhanced understanding of the concept.

18
 2.3.1. The Complication of the Audit Function

The general misperception of the public about the responsibilities of auditors

is often a major factor affecting the expectation gap (Ellis & Selley 1988). Lee
and Azham (2008) further suggest that this complexity is as a result of
auditors’ changing role and the changing objectives of auditing. The audit
paradigm has experienced persistent changes over the centuries. For example,
the focus of audit from 1800´s to 1900´s was on detecting fraud and error and
ensuring the accuracy of accounts (Leung et al. 2004). Meanwhile, auditing in
the last 30 years has focused more on enhancing the integrity and credibility of
financial statements and financial information. Today, the audit function not
only focuses on assuming an enhancing role but likewise providing value
added services, reporting on internal controls, financial irregularities and
business risks (Boynton et al. 2005). These changes in the audit function,
results principally from changes in the socioeconomic environment, the
impact of financial crises, corporate scandals leading to the collapse of big
corporations and technological changes. Thus, the substantial changes in audit
practice and the complicated nature of the audit function and objectives of
auditing create confusion for users with limited knowledge and exposure on
the audit function.

2.3.2. The Audit Conflict of Interest

The provision of non-audit services frequently results in a conflict of interest

which further exacerbates the already precarious expectation gap (Lee et al.
2009). Accounting firms today have extended their line of duty to include
consulting services such as; risk assessment services, information reliability
systems and performance measurement for businesses (Leung et al. 2007). By
providing such non-audit services, auditors acts as advisers to management
and an independent reviewer at the same time. The provision of such non-
audit services may result in a conflict of interest as management expects the
auditor to ignore financial irregularities, while shareholders and the public
expect the auditor to report on such inconsistencies (Koo & Sim 1999). Such
circumstances put the auditor in a multi-role dire situation as management can
fire and replace the auditor with a more collaborative auditor. Due to the
lucrative nature of consulting services, auditors may in some cases
compromise their independence to continue benefiting from such consulting

19
services (Lee et al. 2009). The provision of such non-audit services confuses
the public as to the actual duties of auditors.

2.3.3. Hindsight Evaluation of Audit Performance

In an early study, Shaked and Sulton (1982) highlighted that accusations

against the audit profession might result from the inability of the public to
evaluate the audit quality and performance of auditors. This results from the
difficulty of the public in distinguishing between the audit quality of one audit
and the audit quality of another. Audit quality and the performance of auditors
are often associated with events such as financial crises or corporate scandals
and failures. However, this method of evaluating auditors after knowledge of
an event is biased and unfair (Humphrey et al. 1992) since it is based on
information which surfaces after a financial crisis or corporate scandal.
Therefore, it becomes difficult to evaluate auditor´s performance or audit
quality in periods without financial crises or corporate failures. On this same
note, Lee et al. (2009) highlight the unsuitability of the hindsight method of
evaluation by pointing out the current negative media publicity against the
audit profession which is likely to influence public opinion that auditors do
not diligently perform their duties. Lee et al. (2009) further note that, auditors
are not completely to be blamed when corporate failures and bankruptcy
occur because such corporate failures may result from factors external to the
audit function such as; poor strategic decisions, mismanagement, inadequate
oversight by the board of directors, fraud perpetuated by management, and
competition and downturns in the industry. Hence, it is imperative for a
distinction to be made between business failures and audit failure as business
failure is often misconstrued for audit failure (Hourguebie 2004). Therefore,
the misperception of the public regarding the evaluation of the quality of an
audit and auditors’ performance further aggravates the AEG.

2.3.4. Time Gap to responding to the changing Public’s Audit

Expectations

The expectation gap may emerge between the period when the audit
profession identifies and responses to the expectation of the public
(Humphrey et al. 1992). Tricker (1982) further notes that accounting standards
mostly emerge after corporate scandals due to new expectations and

20
accountability requirements of the public regarding the audit function.
Humphrey et al. (1992) further note that this demonstrates the audit
profession’s gradual approach in constructively meeting the public’s
expectation. Humphrey (1997) equally highlights that even with the measures
implemented by the audit profession to satisfy the public’s expectations, the
profession is often criticized for failing to meet up with the pace of the rapidly
changing business environment. The audit profession has frequently adopted a
retrospective approach by taking actions mostly after a corporate scandal, or
financial crisis occurs (Lee et al. 2009). Therefore, an expectation gap is bound
to emerge from the period which the public develops an expectation and the
time gap which the audit profession responses to such expectation.

2.3.5. The Self-Regulated Nature of the Audit Profession

The audit profession is self-regulated like most other professions (Humphrey

et al. 1992). In their study, Shaked and Sulton (1982) note that the principal
rationale for self-regulation is the desire of the audit profession to achieve
service quality since the public is unable to measure and evaluate audit quality.
Humphrey et al. (1992) further highlight the downside of self-regulation by
emphasizing that the audit profession is not a selfless, diligent and neutral
body as purported. They further underscore that the audit profession is
economically pro-active even though the profession tries to portray its
members as independent and technically competent in order to achieve the
profession’s self-interest (Lee et al. 2009). Shaked and Sulton (1982) equally
note that when the profession is self-regulated, the service quality of the audit
is usually beneath the public’s expectation. Porter and Gowthorpe (2004) re-
echo this point by pointing to the existence of a deficient performance gap in
the UK resulting from the self-regulated nature of the audit profession.
Consequently, the audit profession explores the loopholes in the self-regulated
disciplinary process to deliver low service quality to the public which expects
high service quality from the auditor (Lee et al. 2009). Therefore, the self-
regulation nature of the audit profession and other factors may result in the
widening of the AEG.

21
 2.3.6. The Unreasonable expectation of the public

The problem of the expectation gap is often tied to the unreasonable

expectation of the public (Humphrey et al. 1993). The public often
misperceives the purpose and nature of auditing. These unreasonable
expectations may be detrimental to the audit profession’s reputation as the
public may fail to recognize the value of audits (Lee & Azham 2008). The
public being the free rider of audited financial reports may require auditors to
perform some duties which may be illogical or cost ineffective (Lee et al.
2009). This gap may thus be impossible to eliminate considering that, the
public does not pay for such information. Therefore, it may be concluded that
the existence of the expectation gap is as a result of the unreasonable
expectations of the public (Lee et al. 2009).

2.4. Remedies to the Audit Expectation Gap

It is imperative that the AEG be narrowed down. As Gray and Stuart (2001)
note, reducing the expectation gap is the only means through which auditors
can regain independence and credibility from society. In this light, Humphrey
et al. (1992) underscore two solutions which could be implemented by the
audit profession to reduce the audit expectation gap which includes; the
constructive, and the defensive approach. The constructive approach is aimed
at changing audit activities to meet the public’s expectations. The constructive
approach could be an important measure to reduce the AEG, but it is quite
costly to implement and requires more audit effort (Sikka et al. 1998). Lee et
al. (2009) note that the constructive approach encompasses; expanding of
audit reports, restructuring audit methodologies, and expanding audit
responsibilities. Meanwhile, the defensive approach involves changing the
public's perception of auditors. The defensive approach is often referred to as
education (Lee et al. 2009).

2.4.1. The Defensive Approach (Education)

The defensive approach entails educating the public whose expectations about
the responsibilities of the auditor are sometimes unreasonable due to
unawareness of the actual duties of auditors (Humphrey at al. 1992).
According to Humphrey et al. (1992), it is imperative to educate and reassure

22
the public through various means such as; changing the wordings of the audit
report, publishing professional statements on the actual responsibilities of
auditors, standardizing the audit report to reduce its complexity making it
more understandable. Several studies (Epstein & Geiger 1994; Fadzly &
Ahmad 2004; Hussain 2003; McEnroe & Martens 2001) concur with the
assertion that, education is an effective means of narrowing the AEG. Porter
and Gowthorpe (2004) equally underscored the effectiveness of education in
reducing the performance gap. They further recommended education for
auditors and audit trainees to ensure they understood their responsibilities as
required by the relevant statute.

In a related study, Monroe and Woodliff (1993) examined the impact of

education on students’ perception on the duties of auditors and the meaning
of the audit report. Their findings confirmed that students’ perception
considerably changed after taking an audit course. Students who had
completed an audit course, perceived the auditor to assume lesser
responsibilities and viewed the financial statements to be more reliable
compared to students who did not enroll for any auditing course. Pierce and
Kilcommins (1996) conducted two surveys on undergraduate students, divided
into five groups as an extension of the work of Monroe and Woodliff (1993).
Their findings were consistent with the results of Monroe and Woodliff (1993)
as students who enrolled either in a module or course in auditing had lesser
expectations of auditors.

In a related study, Grambling et al. (1996) observed a similar trend with the
expectation gap reducing after students enrolled for an audit course which
covered topics on auditors’ responsibilities. Similarly, Siddiqui et al. (2009)
observed that traditional audit education plays a vital role in narrowing the
AEG. In a more recent study, Enes at al. (2016) concluded that even though
education does not wholly eliminate the expectation gap, it has the impact of
altering students’ perception about auditors’ fraud prevention and detection
responsibilities. Boyle and Canning (2005) further suggest that teaching and
disseminating information related to financial statement audit may be an
effective means of narrowing the expectation gap. Similarly, Fadzly and
Ahmad (2004) highlighted the importance of using reading materials as an
effective means of correcting some of the misconceptions users have about
auditors’ duties. All these studies raise the fundamental question of whether
audit education plays a significant role in narrowing the AEG through the

23
enhancement of users’ understanding of the duties and responsibilities of
auditors as defined by the relevant regulatory framework.

Lee et al. (2009) note that education may be an impracticable method of

reducing the expectation gap because of the difficulties of education the public
through formal education since some might not have attended formal
education. Similarly, Darnill (1991) highlights the complex nature of auditing
and the disinterest the public may have about auditing. However, more studies
seem to underline the significance of education as a useful tool in narrowing
the expectation gap.

2.4.2. The Constructive Approach

The constructive approach focuses on enhancing auditors’ performance and

expanding auditors’ responsibilities to meet society’s needs. In a report, the
Association of Chartered Certified Accountants (ACCA) (2011) pushed
forward the constructive approach by recommending that audits should
encompass areas such as; corporate governance and risk management. In 2012
this call was extended to Sweden with the Swedish Minister of Financial
Markets recommending internal controls evaluation as a priority area for
auditors (Erhart 2012). As previously mentioned, the constructive approach
encompasses; expanding the scope of audits, restructuring audit
methodologies and expanding auditors’ responsibilities.

2.4.2.1. Expanding the Scope of Audits

There is empirical evidence supporting the effectiveness of the expanded audit

report in narrowing the expectation gap. In studies conducted in the US, the
UK, and Australia (Nair & Rittenberg 1987; Humphrey et al. 1993; and
Monroe & Woodliff 1994) it was observed that the expanded audit report
significantly influenced users’ perception about the responsibilities of auditors
mainly; the purpose of audits, audit procedures, and the responsibilities of
management in preparing financial statements. These studies provide evidence
of the significance of the expanded audit report which aid users in obtaining a
better understanding of the scope, nature, and extent of the audit (Lee et al.
2009). However, Lee et al. (2009) highlight that auditors are reluctant to
provide additional information on issues related to the purpose of audits and

24
audit procedures because ISA-700 does not currently oblige additional
requirements of auditors. Thus, users’ understanding may not increase
significantly except ISA mandates auditors to provide additional information
on the purpose and procedures of audits.

2.4.2.2. Restructuring Audit Methodologies

It is believed that the AEG narrows down when the public is satisfied with the
auditors’ performance. In this light, Koh and Woo (1998) recommend audit
firms to apply structured methodologies to improve auditors’ performance. In
an earlier study, Purvis (1987) concluded that the use of semi-structured and
structured audit procedures might be cost ineffective and not beneficial to the
audit profession. Lee et al. (2009) concurred with this conclusion emphasizing
that due to the functional and dysfunctional effects of the audit assignment,
there is non-consensus on the effectiveness of this method in narrowing the
expectation gap. However, the effectiveness of this approach in reducing the
expectation gap is still subject to debate, and its effectiveness largely depends
on a case by case basis (Lee et al. 2009).

2.4.2.3. Expanding Auditors’ Responsibilities and

Performance

Humphrey et al. (1993) equally recommend expanding the existing duties of

auditors as a means of narrowing the expectation gap. Similarly, the Institute
of Chartered Accountants of Australia (ICAA) (2003) recommended the
expansion of the scope of audits to meet the public’s expectation. Regarding
the numerous litigations against the audit profession, ICAA (2003)
recommends the development and evolution of audit services to include core
and expanded audit services. Core audit services mainly include; internal
control services, fraud prevention and detection, and going concern issues.
The expanded audit services, on the other hand, include; “business risk,
management discussion and analysis, quality of accounting policies, corporate
governance, continuous disclosure, performance audits and continuous
audits." (ICAA 2003 p. 6).

Regarding audit quality, Humphrey et al. (1993) recommended the

establishment of an independent office which oversees the appointment of

25
auditors and regulates audit fees and the expansion of statutory audit duties as
two measures to improve audit quality. Lee et al. (2009) further note that,
while taking into consideration the expansion of auditors’ responsibilities, the
cost of implementing such audit duties should be given due consideration
given that, most of the public are free riders of such services.

2.5. Global Evidence of the Audit Expectation Gap

Several studies conducted in the Anglo-Saxon and Western nations reveal the
existence of the AEG. For example, Humphrey et al. (1993) noted the
existence of the expectation gap in the UK between auditors and
“sophisticated users” (investment analysts, financial journalists, financial
directors and bankers) on the nature of auditing, auditors’ fraud detection
responsibilities, auditors’ responsibilities to third parties, the nature of the
balance sheet evaluation and the perception of auditors’ performance. In an
earlier survey conducted in Australia and Singapore, Low (1984) uncovered an
expectation gap between auditors and analysts in the areas of, fraud detection
and the reliability of financial statements. Furthermore, Monroe and Woodliff
(1994) observed the existence of the AEG in Australia between Auditors and
accountants, shareholders, directors, creditors and undergraduate students
based on the wordings of the old report form before AUP 3. They, however,
noted that the modified wordings in AUP 3 significantly affected users’ beliefs
regarding the responsibilities of auditors and management and the nature of
audits, thus eliminating some of the unreasonable expectations.

Furthermore, Baron et al. (1977) observed the existence of the expectation gap
in the US between auditors and financial statement users pertaining to
auditors’ responsibility for detecting illegal acts. Similarly, Lowe (1994)
uncovered an expectation gap in the US between auditors and judges, with
judges having more expectations of auditors. Epstein and Geiger (1994)
equally observed the existence of the expectation gap in the US between
auditors and investors, with more than half of the investors surveyed
expecting absolute assurance that financial statements were free from material
misstatements. Consistent with the study of Epstein and Geiger (1994),
McEnroe and Martens (2001) observed the existence of an expectation gap
between auditors and investors pertaining to auditors’ fraud detection and
reporting responsibilities. Low et al. (1988) observed the existence of the
expectation gap in Singapore between auditors and financial analysts regarding

26
the perception of the objectives of an audit particularly; auditors’ fraud
prevention responsibility, assuring the accuracy of financial statements, the
effectiveness of government grants and the effectiveness of management. In a
more recent study, Best et al. (2001) similarly observed the existence of a very
wide expectation gap between auditor, bankers and investors in Singapore
particularly on issues related to auditors’ fraud prevention and detection
responsibilities, auditors’ responsibility for maintaining accounting records and
auditors’ judgment in selecting audit procedures.

Salehi et al. (2009) likewise established the existence of the expectation gap
between auditors and investors in Iran on auditors’ independence. Similarly,
Pourheydari and Abousaiedi (2011) highlighted the existence of the AEG in
Iran between auditors and investors, bankers and brokers particularly on issues
related to auditors’ fraud detection responsibilities, the preparation of financial
statements and the soundness of internal controls. To a lesser extent, the
expectation gap was found to exist on auditors’ fraud prevention
responsibility. Dixon et al. (2006) equally observed the existence of a wide
expectation gap between auditors and financial statement users related to
auditors’ fraud prevention responsibilities, auditors’ role in maintaining
accounting records and auditors’ judgment in selecting audit procedures. To a
lesser extent, the gap was observed on issues related to the reliability of
audited financial statements and the usefulness of financial statements.
Likewise, Lin and Chen (2004) underscored the existence of an expectation
gap between auditors and management, educators, investors and the
government on issues related to; the role of auditors, the objectives of audits
and auditors’ fraud detection role. The reasonableness gap was equally
observed to exist in Lebanon between auditors and financial statement users
(Sidani 2007). A gap between auditors’ understanding of their duties and
financial statement users’ perception was established in Lebanon particularly
regarding auditors’ fraud detection responsibilities.

Desira and Baldacchino (2005) equally underscore the existence of the AEG in
Malta between auditors and jurors related to auditor’s actual duties and
auditors’ responsibilities regarding fraud detection, internal control structure
and maintaining accounting records. Hassink et al. (2009) similarly
underscored the existence of the expectation gap between auditors and
financial managers in the Netherlands about the general fraud responsibilities
of auditors and auditors’ fraud detection responsibility.

27
Consistent with most findings on the expectation gap, Fadzly and Ahmad
(2004) observed the existence of an expectation gap between auditors, brokers,
bankers, investors and investor in Malaysia. This gap was found to be wide on
issues related to auditors’ fraud detection and prevention responsibilities,
maintenance of accounting records, internal control and the preparation of
financial statements. Siddiqui et al. (2009) equally observed the existence of the
expectation gap between auditors, bankers and university students regarding
auditors’ responsibilities in Bangladesh.

2.6. Hypotheses Development

In this section, we develop our research hypotheses to enable us to answer the

research questions developed for this study. The hypotheses developed are
based on the above-presented literature and guides the data collection method
used in this study. In total six hypotheses are developed for this study.

H1: First-year students (CS1 and CS2) and final-year students who have
not enrolled for any audit course (CS4) have unreasonable expectations
about the duties and responsibilities of Auditors.

We develop (H1) based on the idea that, first-year students and final-year
students who have not enrolled for audit courses will have expectations which
fall out of the scope of duties required of auditors by ISA and ABL.

H2: Final-year civilekonom students specializing in accounting who

have enrolled for audit courses do not have unreasonable expectations
about the duties and responsibilities of Auditors.

This hypothesis is developed based on the premise that, final-year civilekonom

students who have enrolled for audit courses which include the nature, scope,
and limitations of audits possess adequate knowledge of the duties of auditors
as required by ISA and ABL. Thus, they are less likely to have unreasonable
expectations of the auditor.

H3: There is a significant difference in perception between first-year

students with no audit education (CS1) and final-year students with
audit education (CS3) regarding the responsibilities of auditors.

This hypothesis is premised on the assumption that final-year students who

have enrolled for audit courses possess adequate knowledge of the nature,

28
scope, and limitations of audits compared to first-year students with an
inadequate background on auditors’ duties. Thus, the difference in perception
stems from the variation in audit knowledge among first-year students with no
audit education background and final-year students with an audit education
background.

H4: There is no significant difference in perception between first-year

students with no audit education (CS1) and first-year students with
audit education (CS2).

This hypothesis is grounded on the assumption that, the scope of audit

courses at the first-year is introductory in nature and does not cover topics on
auditors’ responsibilities as required by ISA and ABL. Thus, there is bound to
be an insignificant variation in perception between both student categories.

H5: There is a significant difference in perception between final-year

students who have enrolled for audit courses (CS3) and final-year
students who have not enrolled for any audit course (CS4).

This hypothesis is premised on the same notion as H3. Final-year students

who have not enrolled for audit courses are most likely to misunderstand the
duties of auditors, unlike final-year students who have enrolled for audit
courses. Thus, we hypothesize there is a gap between both student categories
regarding the responsibilities of auditors.

H6: Advanced audit education is the primary factor which results in the
differences in perceptions between First and Final year student.

We consider audit education to be the central factor which accounts for the
expectation gap as only 10% of the respondents had audit related work
experience. Therefore, we assume that any differences in perception of
students resulted from audit education.

It is worth mentioning that, audit experience was taken into consideration for
students who had enrolled for audit courses only. Therefore, there was no
category of students who had not enrolled for audit courses but had the
necessary audit work experience.

29
3. Audit Practice and the Expectation Gap in Sweden
This chapter presents an overview of the practice of auditing in Sweden, the duties of auditors
in Sweden based on the Swedish Company Act of 2005, the audit report format based on
ISA-700, and the audit expectation gap in Sweden.

3.1. Audit Background and Practice in Sweden

Due to the separation of ownership and control in LLCs, it is imperative for a

third party to certify that the financial statements presented by management
give a true and fair view of the financial situation of the entity (Agevall &
Jonnergård 2013). Audits were first mandated in Sweden in 1895 following the
proliferation of LLCs after the ABL of 1848 which provided alternative
avenues for raising capital with much reliance on external funding. Thus there
was a separation between ownership and control. Three principal reasons
precipitated the issuance of the 1895 ABL; (1) to protect the public from bad
investments, (2) to protect shareholders from abusive, self-interested and bad
management, (3) to grant minority shareholders more rights (Jönsson 1991).
The auditor was mandated to do an annual review of the entity's financial
statements and issue an opinion thereof (Öhman & Wallerstedt 2012).
Furthermore, auditors had a maximum term limit of two years. The primary
objective of audit at the time was to protect shareholders’ holdings (Morberg
et al. 2014). Today such protection is extended to include a wide range of
stakeholder groups such as; investors, creditors, other interested parties, and
the audited entity. In Sweden, the size of the company is the main determining
factor as to whether an audit is mandatory or optional (Carrington 2010).
Public Limited Companies are obliged to have their financial statements
audited (ABL 9:13).

Öhman and Wallerstedt (2012) present a background history of audit practice

and regulation in Sweden in which they highlight the creation of SRS in 1899
which was primarily made up of individuals with no formal audit experience
and who performed audits as a secondary duty. Later, in 1909, the Stockholm
School of Economics was established and started training auditors with the
first audit graduates in 1911. The creation of the Stockholm School of
Economics subsequently led to the Swedish Chamber of Commerce
authorizing the first auditors in 1912. In the same year, the Federation of
Swedish Industries equally created an audit committee tasked with crafting
audit guidelines. Prior to this, the ABL was updated in 1910 which extended
the duties of auditors to protect shareholders rather than board members. The

30
ABL of 1910 prohibited company employees or anyone employed by a board
member to become a company’s auditor. The act further clarified and
highlighted the rights and obligations of auditors such as; having access to
inventory and cash records which some general meetings had previously
withheld auditors from access to such information.

Furthermore, in 1923, FAR was created and was comprised of academically

trained auditors who performed auditing on a full-time basis, unlike SRS
auditors whose members were not very qualified and worked on a part-time
basis. Disputes between SRS and FAR over the legality of which body could
authorize auditors resulted in the creation of a new audit title called “registered
accountant” in 1931. The main differences between the authorized public
accountant (FAR) and the registered accountant (SRS) were that there were
less theoretical and practical requirements for registered accountants
compared to authorized public accountants. Also, authorized public
accountants mostly worked for companies listed on the Swedish Stock
Exchange Market whereas registered accountants mostly worked for LLCs.
Subsequently, FAR began pushing the Stock Exchange market to mandate all
listed companies to have an authorized auditor. This request only came to
fruition with the ABL of 1944 after the 1932 Kruger crash which Larsson
(2005) notes as the most remarkable incident which revolutionized audit
practice in Sweden. FAR tried to distant itself and its members from the
scandal and subsequently drafted a 15-point code of conduct which
encompassed aspects such as; auditors’ independence, professional ethics of
auditors and equally incorporated issue related to price competition.

In 1944, a new ABL was established which mandated listed companies to

have at least one authorized auditor. The act further detailed the duties of
auditors to include auditors' independence. Additionally, financial statements
became clearer and understandable. Moreover, auditors were expected to sign
the balance sheet and the profit and loss statements certifying that they were in
accordance with the company’s books. At the time of the Kruger crash, FAR
through its “Någraord om siffer-granskning” translated as “A few words
about checking figures” limited the duties of auditors to detecting and
preventing misappropriation within a business entity by reviewing financial
statements in a detailed manner. Ensuring adequate internal controls remained
a function of companies. The aim of the 1944 ABL was to prevent a similar
Kruger Scandal from reoccurring by toughening the audit regulatory
framework (Johansson et al. 2005).

31
Auditing before the 1960’s was focused on checking figures, but from the
1960’s onwards the focus changed to internal controls. The advent of the
1970’s was met with the globalization of markets in which audit standards
became international. To catch up with such international audit practice, FAR
abandoned its item-by-item checking system for a more complex and technical
audit process. From 1971 FAR started issuing professional recommendations
which were subsequently approved by the ABL of 1975. The 1975 ABL
further made it mandatory for auditors to comply with GAAS with the audit
profession interpreting such standards. A proposal was equally made in 1975
for all companies to have a certified auditor but the scarcity of auditors at the
time prevented it from being implemented. Nevertheless, from 1983 onwards,
statutory audits became mandatory with all limited companies required to have
an approved or certified auditor (Wallerstedt 2001). From 1985 auditors in
Sweden were expected to issue a qualified opinion (Öhman & Wallerstedt
2012.) and report to the authority investigating economic crimes (Widhagen &
Damberg 1985) in cases where companies failed to comply with the tax
legislation and other legislations (Larsson 2005). Additionally, auditors were
empowered to report crimes committed by board members and CEOs (SFS,
1998:760).

Johansson et al. (2005) note that in 1995 after Sweden became a member of
the EU, it had to adhere and comply with EU directives especially the 8th
directive which regulates audit practice. Thus, in 1995 and 1999 respectively,
an Annual Accounts Acts and new laws governing auditors and auditing were
enacted. The 1995 ABL mandated an independent authority (National Board
of Trade) to deal with issues related to auditing. Meanwhile, the Supervisory
Board of Public Accountants was charged with approving auditors, issuing
auditing guidelines and resolving resulting complaints. In 2001, Sweden
became the first European nation to implement a tool called “the analysis
model” which provided auditors the opportunity to monitor their
independence. In addition to complying with EU rules, auditors were equally
required to perform management audits, a provision which is applicable only
in Sweden and Finland.

32
 3.2. Duties of Auditors based on the Swedish Company Act (ABL) of
2005.

The practice of audit in Sweden is mainly in line with the European

Commission’s 8th Directive on Company Law (2006/43/EC). Other statutes
which are binding in Sweden include; Accountants Act (2001:883) - Auditors
Act, Auditor ordinance (1995: 665) and Auditor Board Regulation (RNFS
1996:1, 2001:1, 2001:2). These statutes deal with the duties and responsibilities
of approved auditors and authorized auditors. The ABL of 2005 further
elucidates on the duties and responsibilities of a company elected auditor.
Auditors are usually appointed by the shareholders during the Annual General
Meeting (AGM) for a period of four years. In appointing the auditor, the
shareholders take into consideration the perspective of other stakeholders
(FAR 2004). Before accepting the audit engagement, auditors are expected to
perform a review under the analysis model to ensure that, there are no pre-
existing situations which could undermine auditors’ independence and
confidence. There are no rules regarding the number of times an auditor can
be elected as a company auditor. Likewise, no provisions exist regulating the
dismissal of the auditor before the term limit expiration (FAR 2004). In
performing the audit function, auditors are required to comply with the
Auditor Act section 19, which requires the auditor to maintain high
professional standards in discharging their duties by adhering to the GAAS
provisions. FAR mostly deals with ethical issues on related to how auditors are
to conduct themselves in an audit (FAR 2004).

As previously mentioned ABL Chapter 9, section 1 (9:1) requires all

companies to have at least one auditor with ABL (3:1) requiring the company
through its Article of Association to state the maximum and the minimum
number of auditors. Companies may equally appoint alternate auditors if they
wish (ABL, 9:2). ABL (9:3) requires the auditor to conduct a detailed and
extensive examination of the entity’s annual financial reports likewise the
management of both the board of directors and managing director. Such
examination must be based on GAAS. The provision further requires the
auditor to examine the group reports, when a parent company is involved.
When such group reports are prepared, the auditor is expected to review the
relationship between companies in the group.

The auditor is equally supposed to comply with the provisions of the articles
of association, GAAS, instructions of the general meeting and any relevant
statute in pursuant of the audit (ABL; 9:4). Furthermore, the auditor is

33
required to present an audit report at the end of financial year to the general
meeting (ABL; 9:5). The audit report is supposed to be presented to the board
of directors at least three weeks before the general meeting (ABL, 9:28). The
audit report is expected to contain; the name of the entity audited, the
coverage period of the auditor’s report, the audit standard system
implemented, the signature of the auditor and date of completion of the audit
assignment (ABL 9:29). The auditor is further charged with highlighting any
inherent limitations experienced in performing the audit, differences in
opinion with the board of directors and another auditor, and circumstances
which prevent the auditor from expressing an opinion (ABL9:30). In this
regard, auditors are to disclose if applicable statutes adhered to in preparing
the annual reports and auditors are expected to state whether the entity's
accounts present a true and fair view of its financial position and if the
administration’s report is consistent with the annual report (ABL 9:31).

Additionally, the auditor is expected to state in the audit report if the annual
general meeting should adopt the balance sheet and income statement report
(ABL 9:32). In situations where the board of directors or the managing
director makes an omission which could result to a liability, the auditor is
expected to report on such circumstances (ABL 9:33). Auditors are mandated
to disclose all taxation related breach ranging from; failure of the company to
make the right deductions, failure of the company to make timely tax payment,
failure to comply with the registration requirements contained in chapter 3,
section 2, and failure to file tax returns as contained in chapter 10, section 9.
Concerning the audit, the auditor is required to provide any criticisms and
observations to the board of directors (ABL 9:6). The board is expected to
note such objections in its minute or have it documented. Such criticisms are
supposed to be deliberated upon not more than four weeks after their initial
submission (ABL 9:39). Auditors are expected to maintain a high level of
confidentiality by avoiding disclosing any sensitive information about the
company which may be detrimental to the company (ABL9:41).

3.3. Audit Report Format Based on ISA-700

Audits in Sweden are performed in accordance with the provisions of ISA.

The content and form of the audit report must meet the requirements of ISA-
700. The European Commission (2010) underscores that such a report could
lead to a report which either states no audit failure or an audit failure. It is

34
worth noting that, 90% of audit reports have an unqualified audit opinion
(Hayes et al. 2005). A standard unqualified opinion usually commences with
the title page indicating the audit was performed by an independent auditor.
This is followed by the name of the entity being audited, the financial
statements being examined and their titles, a summary of accounting policies
and other relevant explanatory information implemented in the company, the
date, and period of coverage of each financial statement (ISA-700,
paragraph22- 23).

The responsibilities of management must be stated in a section highlighting

that, it is the responsibility of management in preparing the financial
statements in accordance with the relevant financial regulation and ensuring
adequate internal controls to safeguard financial statements from material
misstatements (ISA-700, paragraph 26). Likewise, the responsibilities of the
auditor should be stated in a separate section (ISA-700, paragraph 28)
highlighting the duty of the auditor in forming an audit opinion based on the
financial statements audited (ISA-700, paragraph 29). This section must
contain a statement highlighting that the audit was performed in accordance
with ISA with the auditor complying with relevant ethical obligations to obtain
reasonable assurance that the financial statements are free from material
misstatements and error through planning and performing audit procedures
(ISA-700, paragraph 30).

The audit report must describe the purpose of the audit which is aimed at
obtaining evidence regarding management’s assertions contained in the
financial statements. The auditor’s judgment is the main determinant of the
selected procedure which is often based on the auditor’s risk assessment of the
occurrence of fraud and the strength of internal controls. The audit report is
supposed to contain and opinion paragraph in which the auditor expresses
his/her opinion based on the method of preparation of the financial
statements. Financial statements prepared based on fair presentation have a
standard format for the unmodified opinion (ISA-700, paragraph 34). Auditors
are expected to state the financial reporting framework applied in case
International Financial Reporting Standards (IFRSs), or International Public
Sector Accounting Standards (IPSASs) are not implemented (ISA-700,
paragraph 37). The audit report shall be concluded with the signature of the
auditor, the date of the audit report and the address of the auditor (ISA-700,
paragraph 40, 41, 42).

35
 3.4. Audit Expectation Gap in Sweden

The main trigger which brought the debate of the AEG in Sweden was the
1930 collapse of the financial empire of Ivar Krüger. This scandal brought the
audit profession into the spotlight with enhanced criticism of the profession
which simultaneously resulted in changes in audit regulations and the audit
profession. This collapse signaled cracks on the integrity of the audit
profession as it significantly affected and changed the role of auditors in
Sweden (Carrington 2010). Legislative changes were further enhanced with the
adoption of the 1994 ABL which extended the duties and liabilities of auditors
to include creditors and other third-party investors and not just business
entities (Carrington 2010). The Skandia fraud case often referred to as
Sweden’s Enron further exacerbated the criticism on auditors by stakeholders
for failing to detect such a fraud and material financial statement omissions
which further depleted the confidence stakeholders had in financial statements
and auditors (Enevång & Furberg 2007).

The fall in confidence of stakeholders is detrimental to the proper functioning

of the capital markets as investors rely on the audited financial statements to
make investment decisions (Agevall & Jonnergård 2013). Other scandals such;
Carnegie, Panaxia, TeliaSonera, HQ Bank, etc. further fueled the debate of the
AEG (Danielsson 2012) which subsequently led to a fall in users’ confidence
and widened the expectation gap. Questions raised after these recent scandals
have focused on the role of auditors rather than the actual audit which further
expands the expectation gap as society’s perception of auditors' duty to include
fraud detection is advanced (Balans 2007). The former chairman of FAR SRS,
Peter Clemdtson highlights statutory audits and frameworks designed for
entities ranging from small to multinational entities as the two principal
institutional factors affecting the expectation gap (Balans 2007).

Early evidence of the existence of the expectation gap in Sweden is published

in Balans, a journal issued by FAR. Gometz (1982) for example established the
existence of the expectation gap in Sweden and attributed its existence to two
principal reasons; misunderstanding of the role of auditors by the public and
the disputed claims of the role of auditors. Moreover, he highlighted the
misunderstanding of the role of auditors as an existential threat to the audit
profession as the public often expects the auditor to perform tasks which do
not fall within the scope of the audit. In noting the existence of the
expectation gap, Strandin (1992) however recommended the need for the audit
report to communicate clearly what auditing is all about to prevent the

36
expectation gap from further widening. Meanwhile, Lövgren (1993) stressed
the importance of an audit committee in listed companies, the creation of
internal quality controls for audit firms and for the audit committee to meet
the expectations of stakeholders.

Recent studies conducted in Sweden have established the expectation gap in

even more specific areas. For example, Brendahl and Forsbery (2011) found
the existence of an expectation gap between auditors and investors resulting
from poor communication and new standards. Meanwhile, Kristoffersson et
al. (2009) note the existence of the expectation gap between companies and
auditors even though they underscored gap is not as wide as perceived by
auditors. In a related study, Jepsson and Jönsson (2007) highlight the existence
of an expectation gap between journalists and companies regarding auditors’
fraud detection and prevention responsibilities. Journalists turn to have less
confidence in the auditor compared to companies, even though companies
believe there are lapses in auditors’ competence.

From a more specific perspective, Magnusson and Olofsson (2007) observed a

high expectation gap within small and SMEs entities with a greater proportion
of the gap from small companies. In another study, Johnsson and Nilsson
(2011) highlighted that the expectation gap was higher for small companies
which chose to relinquish its auditor compared to small firms which retained
or maintained its auditor. Poor information and inadequate knowledge were
the prime causes for this high expectation gap (Magnusson & Olofsson 2007).
Lehman and Nordenson (2014) further found the existence of an expectation
gap between business students and audit practitioners in Sweden. Meanwhile,
Madsen (2013) observed the existence of the expectation gap between
commercial loan officers and auditors. The gap was substantive in areas
related to auditors’ fraud detection and prevention responsibilities, internal
control and the preparation of financial statements. Additionally, Forsberg and
Dellby (2016) observed the existence of the expectation gap between chief
executive officers, chief finance officers, and auditors.

37
4. Methodology
This chapter presents an overview of the research methodology designed to achieve the
objectives of this thesis. It presents the research design, data collection method, validity and
reliability, limitations of the study, data analysis procedures and an overview of questionnaire
statements.

4.1. Research Philosophy and Approach

It is imperative for researchers to know the subject matter (Kvale 1996) and
the objectives of the study before deciding on the method to implement
(Arksey & Knight 1999). It is crucial for the researcher to identify the research
philosophy needed to design and collect data. Research philosophy concerns
knowledge development and the nature of such knowledge. Social sciences
mainly implement two philosophical views; epistemology and ontology.
Epistemology deals with what is considered acceptable knowledge in a given
field. It deals with the methods used to acquire knowledge (Bryman & Bell
2015). The epistemology chosen thus reflects the beliefs and values of the
researcher. Two principal research epistemology exist; positivism and
interpretivism (Saunders et al. 2003, Bryman & Bell 2011, p.15).

Positivism mainly aims to apply natural science methods to the social world
meanwhile; interpretivism makes such distinction between natural science and
social science methods (Bryman & Bell 2015). A clear distinction between
both methods is; positivism focuses on explaining human perception and
behaviours using natural science methods, while interpretivism focuses on
understanding people and institutions. Thus natural science methods are
incompatible with the interpretivism. Interpretivism emphasizes values,
norms, subjective position and human perception and behaviours (Bryman &
Bell 2015). It is worth noting that, the research design implemented in any
study is influenced by the epistemology. Thus, the epistemology used in a
research helps in answering the research questions. This thesis adopted the
positivist approach since the aim was to test natural science methods in the
social world.

Ontology, on the other hand, focuses on a researcher’s views of the nature of

reality which could be either subjective or objective (Bryman & Bell 2015).
Objectivism is a normative position which asserts that social phenomena and
entities exist independently from social actors. Thus, social actors cannot

38
influence the world around them. Whereas, constructionist view social realities
as created through the perceptions and actions of social actors concerned
about their existence. Based on this definition, realities of the social world are
constructed and continuously evolve through revision (Bryman & Bell 2015).
From a constructionist perspective, social phenomena are realized and fulfilled
by social actors (Bryman & Bell 2011, p.21). Therefore, constructionists adopt
a subjective approach to reality whereas; objectivists adopt an objective
interpretation to reality. This study adopted objectivism as the ontological
approach with the underlying assumption that, external realities and social
events are beyond human influence which runs contrary to the constructionist
viewpoint (Bryman & Bell 2015). Our choice of positivism further justifies our
choice of the objectivist approach for this study.

The relationship between theory and research could be shown by the research
approach implemented (Bryman & Bell 2015). The research approach focuses
on the data collection method needed to answer research questions (Saunder
et al. 2009, p. 106). The research approach could be classified into the
deductive, inductive, and abductive approaches (Bryman & Bell 2015). The
deductive approach begins with a general perspective (theory) which forms the
basis for the development and testing of hypotheses and ends with a specific
conclusion based on premises which explain why it is commonly referred to as
the top-down approach (Trochim 1999, p.26). The deductive reasoning is
usually associated with the positivist position and is frequently employed in
quantitative studies through which hypotheses are deduced based on existing
knowledge (Bryman & Bell 2007, p.21). Meanwhile, the inductive approach
begins with specific observations and ends with wider generalizations and
theories (Saunders et al. 2009, p.125). It is often referred to as the bottom-up
approach (Trochim 1999, p.26) since it begins with specific observations and
ends with the generalization of a theory. Thus, the inductive approach enables
researchers to make generalizations from specific viewpoints. The inductive
approach is often implemented in qualitative studies with an interpretivist
position (Bryman & Bell 2007, p.29). On the other hand, the abductive
approach is a combination of both inductive and deductive methods.

The deductive reasoning was adopted for this study through which, the thesis
was guided by existing knowledge and theoretical considerations. Hypotheses
were developed and empirically tested. This study couldn’t use the inductive
approach because the aim was not to generate theories but test existing
theories. The deductive approach was most appropriate for this thesis because

39
there exist a vast theoretical literature on the subject, but little studies have
been conducted to test these theories.

4.2. Research Design and Strategy

There are principally five research designs; case study, experimental, cross-
sectional, longitudinal and comparative designs (Bryman & Bell 2007 p.53).
The research design is the plan and strategy used by researchers to achieve the
objectives and aims of the research. The cross-sectional likewise known as the
survey design was adopted in this thesis. Bryman and Bell (2015, p.62) define
the cross-sectional design as a process which involves

the collection of data on more than one case (usually a lot more
than one) and at a single point in time in order to collect a body
of quantitative or quantifiable data in connection with two or
more variables (usually many more than two), which are then
examined to detect patterns of association.

Our choice of this method is method relates directly with the purpose and aim
of this study which is to evaluate the impact audit education has on the AEG.
There are two principal research strategies used in data collection; quantitative
and qualitative methods. The quantitative method follows a systematic
empirical approach involving data quantification with the assistance of
mathematical and statistical tools (Bryman & Bell 2007, p.26). The quantitative
method involves empirically testing data to observe a relationship and make
conclusions based on the results obtained. Meanwhile, the qualitative strategy
focuses on, vocabulary and formulations in the data collection and analysis
phase. Additionally, qualitative research is often influenced by individual
perceptions and interpretation (Bryman 2012).

The quantitative research strategy was used for this study to obtain
quantifiable data which was used to empirically test the hypotheses developed
for this study and make the relevant conclusion. This method is most
appropriate for this thesis as positivism was adopted as the epistemological
approach and objectivism as the ontological approach. Furthermore, the
quantitative approach has the advantage of ensuring consistency and easy
replication of findings overtime (Bryman & Bell 2015). However, even though
some researchers criticize this method for creating a static view about social
outcomes and people’s lives (Bryman & Bell 2015), it was most appropriate

40
for this study. This study could not adopt the qualitative method because the
focus of the study was not on words or gaining an in-depth understanding of
people’s perceptions. Furthermore, the qualitative method is too subjective
and difficult to replicate (Bryman & Bell 2015).

4.3. Data Collection

Data collection is an essential component of every research. Bell (2010)

emphasizes that the procedure through which data is collected should be
evaluated to determine the extent of its reliability and validity. Data can be
principally collected through primary and secondary sources. Primary data is
data which is originally collected. Meanwhile, secondary data is data which has
already been compiled by others (Bryman & Bell 2015). Primary data was the
main data source for this thesis and was obtained through the survey
questionnaire technique.

4.3.1. Questionnaire

This study adopted the questionnaire approach consistent with previous

studies on the AEG (Porter 1993; Monroe & Woodliff 1993; Pierce &
Kilcommins 1996; Best et al. 2001; Lin & Chen 2004; Fadzly & Ahmad 2004;
Siddiqui et al. 2009; Dixon et al. 2006; Pourheydari & Abousaiedi 2011). The
questionnaire was mainly divided into two sections; the first section contained
demographic questions (gender, age, and experience). The second section
contained 17 semantic differential belief statements. Statements 1-8 focused
on auditors’ responsibilities, statements 9-14 focused on audit reliability,
meanwhile statements 15-17 focused on decision usefulness. All statements
were randomly arranged.

Each of the statements in the second section is evaluated using the five-point
Likert scale enabling respondents to choose their level of agreement on a scale
of 1-5. Bell (2010) credits the Likert scale for its significance in assessing
perceptions which fall in line with the objectives of this questionnaire.
Furthermore, the five-point Likert scale has the advantage of reducing wrong
responses as respondents without sufficient knowledge on the subject matter
can always choose the neutral option. However, there is a long-standing
debate regarding the optimal number of the scale, whether the five or seven-

41
point scale is most appropriate (Preston & Colman 2000). Nevertheless,
Preston and Colman (2000) prefer the five-point Likert scale considering that
it is less demotivating and frustrating to respondents compared to the seven-
point Likert scale. Some of the statements contained unreasonable
expectations regarding auditors' responsibility and audit reliability.

The questionnaire was developed based on examination of previous literature

in the domain. The questions were modified through expert opinion from
some accounting professors to suit the local situation in Sweden. The
questionnaire technique is an efficient means of collecting data from a large
respondent group and has the advantage of avoiding respondents bias
(Bryman & Bell 2015). The questionnaires were designed to ensure that the
precise data needed for this study was collected to achieve the objectives of
this study. The questionnaires were electronically sent to respondents with all
questions being close ended which facilitated data encoding. Respondents
were equally promised anonymity and confidentiality of their responses. The
questionnaire was translated to Swedish to ensure maximum understandability
from respondents who may not understand some of the audit terminologies in
English. The survey questionnaire used for this study is justified considering
that; the AEG concerns differences in opinion.

4.3.2. Sample population

The research population of this thesis is civilekonom students in Sweden. In

order to obtain the right information, this thesis applied the judgmental
sampling approach by deliberately selecting first-year civilekonom students
who have and have not taken any formal course in auditing and final-year
civilekonom students who have and have not enrolled in auditing courses.
Convenience sampling was equally implemented for this study because it was
based on the willingness of respondent institutions to let their students
participate by providing us with the relevant contact details. To attain the
objectives of this study, which is to investigate the impact audit education has
on the AEG, the students used as respondents of this study were categorized
into four groups; CS1, CS2, CS3, and CS4. Students belonging to CS1 were
first-year students who had not enrolled for any audit courses whereas CS2
were first-year students had enrolled for at least one audit course. CS3
students were final-year students who had enrolled for audits courses
meanwhile, CS4 were final-year students who had not enrolled for any audit

42
course. Thus, students belonging to the categories CS2 and CS3 constituted
the experimental group of this thesis, meanwhile students belonging to the
categories; CS1 and CS4 constituted the control group. The participants of this
study were mainly civilekonom students drawn from seven universities in
Sweden which included; Karlstad University, Umeå University, University of
Borås, Halmstad University, Linnaeus University, Jönköping University and
Luleå University of Technology.

The choice of civilekonom Accounting students is justified by the fact that,

most audit firms in Sweden employ civilekonom graduates upon completion
of their studies. Furthermore, civilekonom students are the most suitable
population set to test the impact of audit education on the expectation gap
considering that they enroll for accounting and auditing courses as part of
their program.

4.4. Quality of Instruments

Validity and reliability are criteria imperative in evaluating the quality of the
data collection method implemented in any research (Bell 2010, p.119). Both
measures enhance the authenticity, credibility, and trustworthiness of the
research findings of any study. This thesis makes use of validity and reliability
measures in the results of this study to minimize ambiguity and bias and to
obtain valid and reliable results.

4.4.1. Validity

Validity measures the extent to which the data collection method or

instrument used in a study accurately measures what it purports to measure
(Saunder et al. 2007, Bell 2010). The validity of a study measures the extent to
which the findings of the sample population are generalizable to the whole
population (Bryman & Bell 2015). The validity of the questionnaire used for
this study is believed to be adequate considering that, previous studies in this
area have tested and validated similar questions as well. Furthermore, the
validity of this study was established through face validity (Bryman & Bell
2011, p.160) by sending out the questionnaire to two audit professors with
advanced knowledge on the AEG. The aim of sending out the survey
instrument to these professors was to ensure that the questions were

43
understandable, appropriate and adequately translated to Swedish, considering
the difficulty of clarifying questions not understood through the mailed
questionnaire method (Bryman & Bell 2011, p.262).

4.4.2. Reliability

Bell (2010 p.119) defines reliability as “the extent to which a test or procedure
produces similar results under constant conditions on all occasions." The
quality of research could be measured through the extent to which it can be
replicated with consistency (Bryman & Bell 2015). The questionnaire was sent
to a small group of professors for expert opinion on the survey instrument
with the questionnaire being modified as recommended to suit the Swedish
context. The reliability of the questionnaire is guaranteed by a test-retest
method through which the initial questionnaire was sent to two auditors of a
Canadian EY branch with a one-week interval. The Spearman’s rank
correlation coefficient was calculated to determine the degree of agreement
between both tests. The Spearman’s rank correlation coefficient yielded a
value of 0.82. The high correlation between the two respondents provided
evidence of the reliability of the survey instrument. The Cronbach’s Alpha was
equally calculated to test for internal consistency (Bryman & Bell 2011, p.159)
and yielded a value of 0.935. It is worth mentioning that a Cronbach Alpha
value of 0.70 is usually considered the acceptable value, while a value of 0.80 is
considered good and a value above 0.90 is considered excellent (George &
Mallery 2003). Thus, our Cronbach value indicates an excellent internal
reliability of the survey instrument.

4.5. Analysis

Data collected for this study is analyzed using the Statistical Package for Social
Sciences (SPSS) through which; descriptive statistics, T-test, the test of
ANOVA, Cronbach’s Alpha and the Spearman’s rank correlation coefficient
to test for internal consistency were obtained. The independent sample T-test
is used to derive statistical information related to; the mean, standard
deviation, and p-values of respondents. These measures implemented are
designed to determine if significant differences exist amongst the various
categories of respondents based on the seventeen semantic differential belief
statements.

44
 4.6. Ethical Considerations

Researchers are expected to adhere to high ethical principles related to norm,

values, and codes of conduct while performing research. Ethical
considerations play a vital role in research since it relates directly to the
integrity of the study (Bryman & Bell 2015). This study takes into account the
four ethical principles of Bryman and Bell (2011, p.128-138) which include;
harm to participants, lack of informed consent, invasion of privacy and
deception.

Harm to participants was significantly avoided by designing the questionnaire

to guarantee anonymity and confidentiality. Therefore, no private data was
collected from respondents through the questionnaire. Furthermore, lack of
informed consent of respondents was avoided by explaining the aims and
objectives of the study to participants who subsequently willingly participated
in the study. Additionally, the study implemented the non-invasion of privacy
of participants by using the mail survey method and ensuring that, the survey
instrument guaranteed anonymity and confidentiality. Moreover, deception
was avoided by clearly stating the purpose of the study and objectively
presenting the results and analysis of the study. Besides, the literature used for
this study was properly quoted and referenced to avoid plagiarism.

4.7. Overview of questionnaire statements for the Audit Expectation

Gap

As earlier noted, ISA has been enforced in Sweden since January 2011. The
questionnaire adopted for this thesis consists of 17 semantic belief statements
categorized as follows:

A) Auditors’ Responsibility (8 statements)

B) Audit Reliability (6 statements)

C) Decision Usefulness (3 statements)

An explanation of these semantic belief statements about ISA, ABL, and AA

is imperative in gaining a deeper understanding of the responsibilities of
auditors and the AEG in Sweden.

45
Auditors’ Responsibility (8 statements)

Statement-1: The auditor is responsible for detecting all fraud.

Based on ISA-240, financial statement misstatements can principally result

from either fraud or error (Paragraph 2). The term “fraud” is defined as an
intentional act through deception by an individual or group of individuals
among management or charged with governing the entity, employees or third
parties with the objective of obtaining an illegal or unjust advantage.

Even though fraud is a broad legal concept which is difficult to distinguish

from error, auditors are nevertheless concerned with fraudulent activities
which could result in material misstatements of financial statements
(Paragraph 3). Therefore, auditors are charged with providing reasonable
assurance that financial statements taken as a whole are free from material
misstatements resulting from fraud and error (paragraph 5). ISA-200 defines
reasonable assurance as a high level of assurance (paragraph 5). Due to the
inherent limitations of audits, there is an unavoidable risk that, auditors will
not detect some material misstatements (Paragraph 5).

Therefore, auditors are not responsible for detecting all fraud.

Statement-2: The Auditors is responsible for the soundness of internal control structures
of the entity.

ISA-400 requires the auditor to obtain sufficient understanding of the entity

audited in order to plan and develop an effective audit approach (paragraph 2).

Paragraph 8 defines the “internal control system” as “all the policies and
procedures (internal controls) adopted by the management of an entity to
assist in achieving management’s objective of ensuring, as far as practicable,
the orderly and efficient conduct of its business, including adherence to
management policies, the safeguarding of assets, the prevention and detection
of fraud and error, the accuracy and completeness of the accounting records,
and the timely preparation of reliable financial information”.

Based on ISA, auditors only have the responsibility of evaluating the internal
control systems of an entity to determine audit risk. Hence, auditors cannot be
held responsible for the soundness of internal control systems. It is
management’s responsibility to maintain a sound internal control system for
the entity.

46
Statement-3: It is the auditor’s responsibility to maintain Accounting Records.

Based on ISA-200, the auditor is responsible for expressing an opinion on the

financial statements (paragraph 7) while management is responsible for
preparing and fairly presenting the financial statements based on the relevant
financial reporting framework (paragraph 4).

ISA-700 further requires a section in the audit report stating management’s

responsibility in preparing the financial statements (paragraph 25), and another
section stating the auditor’s responsibility in expressing an opinion on the
financial statements based on the audit (paragraph 29).

Therefore, auditors are not responsible for maintaining accounting records.

Statement-4: It is management’s responsibility for preparing the annual financial

statements.

According to ISA-700, management is charged with preparing the financial

statements. In preparing financial statements, management makes accounting
estimations and judgments and determines the accounting principles and
methods most suitable for preparing financial statements. Such determination
is based on the relevant financial reporting framework enforced. In
circumstances where financial statements are prepared based on the fair
presentation framework, the audit report must contain a statement affirming
management’s responsibility in ensuring that financial statements present a
true and fair true of the financial situation of the entity (paragraph 27).

Therefore, management is responsible for preparing the financial statements.

Statement-5: The auditor is responsible for preventing fraud.

According to ISA-240, those responsible for the governance and management

of the entity bear the duty of preventing and detecting fraud. It is worth
noting that, the responsibilities of those charged with governance and those
charged with the management of an entity differs from country to country.
However, it is necessary for management together with those in the
governance body responsible for oversight to set the appropriate tone by,
creating and maintaining a culture of honesty and high ethical principles, and
establishing control measures to detect fraud and error within the entity.
Oversight measures by those responsible for governance should include,
evaluating the potentials of overriding controls and other inappropriate

47
influence by management aimed at altering the perception of analysts
regarding the profitability and performance of the entity (Paragraph 4).

Therefore, auditors are not responsible for preventing fraud.

Statement-6: The auditor exercises judgment in selecting audit procedures.

ISA-200 requires the auditor to exercise professional judgment in planning and

performing financial statement audits (paragraph 16). Professional judgment
plays a crucial role in audit as it facilitates auditors’ interpretation of ethical
requirements, ISAs and making informed decisions based on relevant known
knowledge and experience. The exercise of professional judgment is relevant
in decisions involving; materiality and audit risk, determining the nature,
timing, and extent of audit procedures to gather audit evidence relevant to
complying with the requirements of ISA. Furthermore, professional judgment
is relevant in evaluating whether sufficient appropriate audit evidence has been
obtained, in assessing whether management’s judgment in applying the entity’s
financial reporting framework and decisions are based on appropriate audit
evidence (ISA 200, A23).

For professional judgment to be effective, it must be based on the evaluation

of relevant facts and circumstances known to the auditor and a competent
implementation of the appropriate accounting and audit principles (ISA 200,
A26). The auditor is equally expected to document professional judgment such
that, an experienced auditor without prior connection to the entity audited can
understand the professional judgment made in arriving at significant audit
conclusions reached during the audit (ISA 230, paragraph 8).

Therefore, auditors are expected to exercise professional judgment during the

audit. This statement is subjective and depends on users' perception of the
auditor fulfilling this function.

Statement-7: The auditor is unbiased and objective.

ISA-200 requires the auditor to comply with IESBA’s Code of Ethics for
Professional Accountants. This code expects high standards of; independence,
objectivity, integrity, confidentiality, professional competence and due care
and technical standards from auditors. Auditors are required not to let;
prejudice, bias, conflict of interest or any external influence override their
professional judgment while performing the audit. Furthermore, section 20 of

48
AA requires auditors to maintain and perform audits based on the ethical
principles of; impartiality, independence, and objectivity.

Thus, auditors are expected to be objective and unbiased while performing the
audit. This statement is subjective and depends on users' perception of the
auditor fulfilling this function.

Statement-8: Corporate management should be held responsible for all business-related

bankruptcy cases arising from fraud.

Based on ABL 29:1, a founder, board of directors or managing director are

held accountable and liable to compensate for damages in the entity resulting
from an intentional or negligent act in performing their duties.

Thus, ABL puts the responsibility on management in bankruptcy cases

resulting from fraud only when the damage results from an intentional or
negligent act. Therefore management liability to business-related fraud cases
depends on a case-by-cases basis.

Audit Reliability (6 Statements)

Statement-9: Users can have absolute assurance that financial statements are free from
material misstatements.

ISA-240 requires the auditor to obtain only reasonable assurance that the
financial statements taken as a whole are free from material misstatements
resulting from error or fraud (Paragraph 5). It worth noting that, reasonable
assurance is not synonymous to absolute assurance. Auditors cannot provide
absolute assurance that financial statements are free from material
misstatements due to the inherent limitations of audits. Most audit evidence
on which auditors draw conclusions are based on persuasive rather than
conclusive opinions (ISA 200, paragraph 5).

Auditors are expected to apply the materiality concept in both planning and
performing an audit as well as in identifying the impact of identified
misstatements on the audit and uncorrected misstatements on the financial
statements as a whole. Based on ISA-320, materiality is defined as "omissions
and misstatements which could individually or aggregately impact the
economic decisions of users based on the financial statement." Auditors
judgment on materiality is expected to be based on the knowledge of the

49
circumstance, the auditor’s perception of financial statement users’ needs, and
by the size or/and nature of the misstatement (ISA-200, Paragraph 6).

Thus, auditors cannot provide absolute assurance to users that financial

statements are entirely free from material errors.

Statement-10: The auditor agrees with the accounting policies used in the financial
statement.

Based on ISA-200 it is the responsibility of management in preparing the

financial statements in accordance with the relevant financial reporting
framework (paragraph 4). Thus, the auditor’s responsibility is limited to
forming an opinion on whether the financial statements are prepared in all
material aspects according to the relevant financial reporting framework (ISA
700, paragraph10). The auditors' opinion is based on the audit evidence
gathered (ISA 700, paragraph 6) on the assessment that, accounting practices
do not reflect management’s bias, significant accounting policies applied have
been disclosed and are consistent with the financial reporting framework of
the entity. Furthermore, in forming an opinion, auditors are expected to
assess if the accounting estimates are reasonable, whether financial statements
as a whole are relevant, reliable, understandable and comparable, and whether
adequate disclosures have been made to enable users to understand the
content of financial statements (ISA 700, paragraph 13).

The auditor forms an unmodified opinion when in agreement with the

accounting policies implemented by management (ISA 700 paragraph 16).
When the auditor is not in agreement with such accounting policies, a
modified audit opinion is issued (ISA 700, paragraph 17).

Therefore, the auditor must agree with management’s accounting policies for
an unmodified audit opinion to be issued.

Statement-11: The financial statements give a true and fair view.

Where financial statements are prepared based on fair presentation, a

statement is expected to be included in the management’s responsibilities
section highlighting management’s role in ensuring that the financial
statements prepared, give a true and fair view (ISA 700, paragraph 27).

In expressing an opinion on financial statements prepared based on fair

presentation, the auditor is expected to state whether the financial statements

50
“present fairly” or “give a true and fair view” in all material aspects based on
the financial reporting framework enforced (ISA 700, paragraph 37).

Thus, an unmodified opinion based on the fair presentation requirement must

state that the financial statements give a true and fair view or present fairly.
Hence audit reports which do not follow the fair presentation requirement are
not expected to have the fair presentation statement.

Statement-12: The extent of assurance given by the auditor is clearly indicated in the
audit report.

ISA-240 paragraph 5 requires the auditor to obtain reasonable assurance that,

the financial statements taken as a whole are free material misstatements
resulting from fraud or error. Thus, the auditor gives reasonable assurance and
not absolute assurance about the financial statements being free from error.
Reasonable assurance refers to high-level assurance (ISA-200, paragraph 5).
Therefore, there is inevitable subjectivity in defining what constitutes high
assurance.

Furthermore, ISA-700 requires auditors to clearly state their opinion of the

audited financial statements (paragraph 6b).There are standardized wordings
for the auditor’s opinion for an unmodified audit opinion. In the case of a
modified audit opinion, the auditor is expected to describe the circumstances
resulting to this based on ISA 705.

Users may have different viewpoints on the extent of assurance given by the
auditor. Therefore, the extent of users’ perception of assurance given by the
auditor is subjective.

Statement-13: The extent of the work performed by the auditor is communicated clearly.

Based on ISA-700, the audit report is expected to contain a section titled

“auditor’s responsibility” (paragraph 28). This section shall underscore the
auditor’s responsibility in expressing an opinion on the financial statements
based on the audit (paragraph 29). The report is equally to highlight that; the
audit was performed based on ISA which requires the auditor comply with
ethical considerations and to plan and perform the audit to obtain reasonable
assurance that, the financial statements are free from material error resulting
from fraud or error (paragraph 30). Furthermore, the audit report shall
indicate the purpose of an audit which is to obtain audit evidence regarding
the numbers and disclosures in the financial statements. The auditor is equally

51
required to examine the appropriateness of accounting estimates and the
reasonableness of management’s accounting estimates. The auditor shall
equally state the audit procedure selected which is based on the auditor’s
judgment of the risk of material misstatements occurring (paragraph 31). The
auditor is expected to equally state the sufficiency and appropriateness of the
audit evidence (paragraph 33).

To the auditor and audit profession, the extent of the work performed by the
auditor is clearly communicated in the audit report. This position may be
disputed by some financial statement users. Therefore, the decision as to
whether the task performed by the auditor is clearly communicated depends
on subjective opinions.

Statement-14: Auditors are trustworthy (reliable).

ISA-200 requires the auditor to comply with ethical requirements and

independence guidelines (paragraph 14) which are aimed at enhancing the trust
the public has for the auditor. Furthermore, ISA-200 requires auditors to
comply with IESBA’s high ethical principles of independence, objectivity, and
integrity. Additionally, section 20 of the AA requires audit activities to be
organized to ensure impartiality, independence, and objectivity. The auditor is
expected to maintain these standards while performing the audit.

Though ISA, ABL and AA advocate for high ethical standards from auditors,
the degree of trust the public has regarding auditors is subjective.

Decision Usefulness (3 statements)

Statement-15: The audited financial statements are useful for monitoring the entity’s
performance.

Based on ISA-200 the financial statements (Balance Sheet, Income Statement,

Cash Flow Statements, Statement of Changes in Owner’s Equity and related
notes), are aimed at providing information regarding the financial position,
performance and cash flow situation of the entity (paragraph A8).

Therefore, audited financial statements are useful in monitoring the

performance of the entity.

Statement-16: The audited financial statements are useful for decision making.

52
Based on ISA-200, the audited financial statements are expected to give a
certain level of assurance to users (paragraph 3). According to ISA-700, in the
course of the audit, the auditor is to ensure that, significant accounting policies
have been disclosed by management and that such policies are consistent with
the relevant financial reporting framework. Furthermore, the auditor is to
ensure that, management’s estimates are reasonable (paragraph 13). These
duties of auditors are aimed at enhancing the usefulness of financial
statements.

Moreover, the auditor is to ensure that the information contained in the

financial statements are relevant, reliable, comparable, and understandable
(paragraph 13d). These qualitative characteristics of accounting information
are designed to enhance the quality and usefulness of financial statements in
decision making.

Therefore, audited financial statements are useful for decision making.

Statement-17: The entity is well managed.

Based on ISA, the scope of financial statement audits does not extend to how
well management manages the entity. ISA-200 unambiguously states that the
audit opinion is not a guarantee of assurance of the future viability of the
entity or on the effectiveness and efficiency on how management runs the
affairs of the entity.

However, ABL (9:3) requires the auditor to conduct a detailed examination of

the administration of both the board of directors and managing director.

Therefore, based on ABL, the auditor is to state how well the entity is
managed.

53
5. Results
This chapter presents a summary of the results of the mailed questionnaire and likewise
contains the result of our tested hypotheses.

5.1. Demographic Information of Usable Respondents

The survey was mailed to 1366 civilekonom students in their first-year of

studies and final-year students specializing in Accounting. Table 1 presents the
distribution of responses for each respondent group; meanwhile, Table 2
displays the demographic information of the usable information.

The results from Table 1 indicate that a total of 164 responses were received
representing a 12% response rate. However, just 137 responses were usable
for this study representing 10.03% of the total population of the study. Final-
year students had a higher response rate (5.05%) compared to the first-year
students (4.98%). However, the general response rate of both respondent
groups is low. This low response rate could be attributed to the unwillingness
of some target survey participants to respond to the survey. Nonetheless,
approximately 20 per cent of the total responses resulted from reminders.
Bean and Roszkowski (1995) underscore that a low response rate could lead to
bias in the sample population especially if there is inequality of non-
respondents in the target sample. Nevertheless, Dey (1997) present a different
perspective, by noting that, a low response rate might be fairly representative
of respondents if the survey respondents are similar to the non-respondents.
Based on the argument of Dey (1997), the respondents and non-respondents
of this study form a homogenous group considering that both respondents
and non-respondents have taken similar courses; thus their responses were
most likely to be similar. Notwithstanding, the non-response bias was tested
for this study by comparing early responses to late responses. This comparison
was based on Oppenheim (1966) who observed similarities between late
respondents and non-respondents. No significant differences were observed
between early and late respondents; thus there was an unlikelihood of non-
response bias.

54
Table 1: Descriptive Statistics of respondents
Responses received Enrolled
for at
least one
accountin
g course

No. % Yes No
Participan No. of Usabl unusabl usable Unusabl Usable
ts questionnair e e e
es sent
First year 872 68 13 4.98% .95% 38 30
students
Final year 494 69 14 5.05% 1.02% 43 26
students
Total of 137 27 10.03 1.97%
usable/ %
unusable
Total 1,366 164 12 % 81 56

Majority of the respondents (59 %) had taken courses in auditing thus

indicating their familiarity with the issues studied and were thus likely to
respond to the survey adequately. This study was initially aimed at taking into
consideration audit education and work experience. However, the results in
Table 2 indicate that just 10.9% of the respondents had actual work
experience. The majority (9) of those with work experience had less than six
months of professional experience, a period too short to meaningfully impact
the AEG. Thus, work experience did not play a significant role in this study.

Table 2: Demographic information of Usable respondents

Sex Audit Experience Duration of
experience
Male Female Yes No Less More
than than
6 6
mont mont
hs hs
No. % No. % No. % No. %
First 31 22.6% 37 27% 5 3.6 63 46% 4 1
year %
students
Final 28 20.4% 41 30% 10 7.3 59 43.1% 5 5
Year %

55
students
Totals 59 43% 78 57% 15 10.9 12 89.1%
% 2

5.2. Results from Semantic Differential Belief Statements

Table 3-11 contain the results of the seventeen semantic differential belief
statements. The tables present the nature and extent of the perceptions CS1,
CS2, CS3, and CS4 have about auditors’ responsibilities, the reliability of audits
and audited financial statements, and the decision usefulness of audited
financial statements. The measures of analysis used to evaluate the statements
are; the mean, standard deviation, and significance (P) value. For this study, we
assume α at 0.05.

5.2.1. Auditors’ Responsibilities

A total of eight responsibility statements on auditors’ responsibility addressing

issues related to; fraud detection, internal control, preparation of financial
statements, auditors’ objectivity and judgment, and management’s culpability
in fraud-related business failures were posed to respondents. The results in
Tables 3, 4 and 5 are based on education as the independent variable. Table 3
shows the mean distribution of the responses and the two-tailed significance
level. The results show a significance difference in responses and an
expectation gap between CS1 and CS3 particularly concerning; auditors’ fraud
detection responsibility (statement 1), auditors’ responsibility in maintaining
accounting records (statement 3), management’s responsibility for preparing
financial statements (statement 4) and auditors’ duty in exercising judgment in
selecting audit procedures (statement 6). The largest difference (p=0) was
related to statement 4 and 6 with CS1 less supportive of management’s
responsibility for preparing the annual financial reports and somewhat unsure
if auditors exercised judgment in selecting audit procedures compared to CS3.

The results indicate that in Sweden, CS3 believe the auditor is responsible for
detecting all fraud compared to CS1 who had no prior audit knowledge and
maintained a neutral position. It is worth mentioning that, ISA- 200 only
requires the auditor to provide reasonable assurance that the financial

56
statements taken as a whole are free from material resulting from fraud.
Interestingly, students with an audit background expected the auditor to detect
all fraud compared to students with no audit background which indicates that
audit education did not actually have an impact on the perception of students
who had enrolled for audit courses. Overall, CS1 were less supportive of
management’s responsibility for preparing the annual financial statements
simultaneously; they strongly disagreed auditors were responsible for
maintaining accounting records. These differences in responses of CS1
indicate the level of uncertainty among CS1 as to their perception of who
bears the responsibility for maintaining accounting records and preparing
financial statements. On the contrary, CS3 strongly disagreed that auditors
were responsible for maintaining accounting records while majority perceived
management as responsible for preparing the annual financial reports.
Additionally, CS3 strongly perceived (mean=4.419) the auditor as exercising
judgment in selecting audit procedures; whereas CS1 slightly agreed that
auditors exercised judgment in selecting audit procedures.

However, both CS1 and CS3 were uncertain about auditor’s responsibility for
soundness of internal controls and preventing fraud. Both student categories
tended to maintain a neutral position in both statements. Furthermore, CS1
tended to concur with CS3 that auditors were unbiased and objective and that
management was responsible for all business-related bankruptcy.

Table 3: Auditors’ responsibility mean distribution (CS1 and CS3)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
The auditor is responsible for CS1 30 3.267 1.2015 .049
detecting all fraud CS3 43 3.837 1.1938 .050
The Auditor is responsible for CS1 30 3.067 1.4606 .430
the soundness of internal CS3 43 3.326 1.3042 .440
control structures of the entity.
It is the auditor’s responsibility CS1 30 2.367 1.4967 .011
to maintain Accounting CS3 43 1.535 1.2218 .015
Records.
It is management’s CS1 30 2.933 1.4368 .000
responsibility for preparing the CS3 43 4.140 1.2068 .000
annual financial statements.
The auditor is responsible for CS1 30 3.367 1.1592 .391
preventing fraud. CS3 43 3.116 1.2575 .384
The auditor exercises judgment CS1 30 3.500 .8200 .000
in selecting audit procedures. CS3 43 4.419 .8517 .000

57
The auditor is unbiased and CS1 30 4.233 1.0726 .277
objective. CS3 43 4.465 .7351 .310
Corporate management should CS1 30 3.733 1.2847 .114
be held responsible for all CS3 43 4.140 .8886 .140
business-related bankruptcy
cases arising from fraud.

Table 4 presents the mean score of responses and the two-tailed significance
level result between first-year students who have enrolled for at least an audit
course (CS1) and first-year students who have not enrolled for any audit
course (CS2). The results indicate no significant differences in responses
between CS1 and CS2 except on the issue regarding auditors’ fraud detection
responsibility (statement 1). Consistent with the results of CS3 in Table 3 who
had enrolled for audit courses which included the duties of auditors, CS2
likewise expected the auditor to detect all fraud. Consistent with the results in
Table 3, CS1 and CS2 maintained a neutral position regarding auditors’
responsibility for the soundness of the internal control structure of the entity
(statement 2) and the prevention of fraud (statement 5). No expectation gap
was equally observed between CS1 and CS2 on the issue of management’s
responsibility for preparing financial statements (statement 4). Both student
categories were uncertain if management was responsible for preparing the
annual financial reports. Additionally, CS1 and CS2 further agreed that
auditors were unbiased and objective (statement 7), that auditors exercised
judgment in selecting audit procedures (statement 6) and that management
was culpable for business-related bankruptcy resulting from fraud (statement
8).

Table 4: Auditors’ responsibility mean distribution (CS1 and CS2)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
The auditor is responsible for CS1 30 3.267 1.2015 .002
detecting all fraud CS2 38 4.079 .8817 .003
The Auditor is responsible for CS1 30 3.067 1.4606 .183
the soundness of internal CS2 38 3.474 1.0329 .202
control structures of the entity.
It is the auditor’s responsibility CS1 30 2.367 1.4967 .519
to maintain Accounting CS2 38 2.605 1.5164 .519
Records.
It is management’s CS1 30 2.933 1.4368 .059
responsibility for preparing the CS2 38 3.553 1.2236 .065

58
annual financial statements.
The auditor is responsible for CS1 30 3.367 1.1592 .361
preventing fraud. CS2 38 3.632 1.1951 .360
The auditor exercises judgment CS1 30 3.500 .8200 .302
in selecting audit procedures. CS2 38 3.711 .8353 .301
The auditor is unbiased and CS1 30 4.233 1.0726 .507
objective. CS2 38 4.053 1.1377 .504
Corporate management should CS1 30 3.733 1.2847 .768
be held responsible for all CS2 38 3.816 1.0096 .774
business-related bankruptcy
cases arising from fraud.

Table 5 presents the results of the mean differences, and the significance level
of responses between final-year students who have enrolled for audits courses
(CS3) and final-year students have not registered for any audit course (CS4).
The result shows no significant differences in responses for majority (7) of the
statements. However, there was a significant difference between CS3 and CS4
regarding whether auditors exercise judgment in selecting audit procedures
(Statement 6). Final-year students who had enrolled for audit courses strongly
perceived (4.419) auditors as exercising judgment in selecting audit procedures
meanwhile; final-year students who had not enrolled for audit courses
perceived auditors as exercising judgment in selecting audit procedures.
However, the significance between both groups stemmed from the fact that,
while CS3 strongly agreed, CS4 simply agreed to auditors exercising judgment
in selecting audit procedures.

No expectation gap was observed between CS3 and CS4 on issues related to
auditors’ responsibility for the soundness of the internal control structures of
the entity (statement 2) and preventing fraud (statement 5). Furthermore, CS3
and CS4 students tended to agree that auditors were responsible for detecting
all fraud (statement 1), that management was responsible for preparing the
annual financial reports (statement 4) and not auditors (statement 3).
Additionally, CS3 and CS4 accepted that auditors were unbiased and objective
(statement 7) and that corporate management were to be held responsible for
all business-related bankruptcy cases resulting from fraud (statement 8).

Table 5: Auditors’ responsibility mean distribution (CS3 and CS4)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
The auditor is responsible for CS3 43 3.837 1.1938 .417

59
detecting all fraud CS4 26 4.077 1.1635 .415
The Auditor is responsible for CS3 43 3.326 1.3042 .691
the soundness of internal CS4 26 3.462 1.4760 .700
control structures of the entity.
It is the auditor’s responsibility CS3 43 1.535 1.2218 .793
to maintain Accounting CS4 26 1.615 1.2354 .793
Records.
It is management’s CS3 43 4.140 1.2068 .962
responsibility for preparing the CS4 26 4.154 1.1897 .962
annual financial statements.
The auditor is responsible for CS3 43 3.116 1.2575 .135
preventing fraud. CS4 26 3.577 1.1721 .130
The auditor exercises judgment CS3 43 4.419 .8517 .032
in selecting audit procedures. CS4 26 3.962 .8237 .032
The auditor is unbiased and CS3 43 4.465 .7351 .706
objective. CS4 26 4.385 1.0228 .728
Corporate management should CS3 43 4.140 .8886 .564
be held responsible for all CS4 26 4.269 .9190 .568
business-related bankruptcy
cases arising from fraud.

A peculiarity among all student groups was the agreement that, auditors
exercised judgment in selecting audit procedures and were unbiased and
objective, and that corporate management was culpable for all business-related
bankruptcy cases resulting from fraud. Furthermore, no expectation gap was
observed among all four student categories on issues related to; auditors'
responsibility for the soundness of internal control structures of entities and
preventing fraud since all student categories maintained a neutral standpoint.
Additionally, all student groups disagreed the auditor was responsible for
maintaining accounting records.

5.2.2. Reliability of Audits and Audited Financial Statements

The six statements on the reliability of audits and audited financial statements
deal with issues related to; the extent of assurance provided by the auditor that
financial statements are free from material misstatements, the accounting
policies used in preparing financial statements, the extent of assurance the
auditor provides that financial statements give a true and fair view, the
effectiveness of audit reports in communicating the level of assurance, and the
extent of the work performed and whether the auditor is regarded as

60
trustworthy and reliable. There were considerable similarities in perceptions
between CS1 and CS3 regarding the reliability of audits and audited financial
statements compared to the responsibility statements. Table 6 to 8 presents
the mean score of responses, standard deviation, and two-tailed significance
level. From the results in Table 6, no expectation gap was found between CS1
and CS3.

Both CS1 and CS3 agreed that audited financial statements were completely
free from material misstatements (statement 9) though CS3 had a higher mean
agreement level (though not statistically significant) compared to CS1.
Similarly, CS1 and CS3 relatively agreed that financial statements give a true
and fair view (statement 11). Additionally, both CS1 and CS3 agreed that the
extent of assurance (statement 12) and the extent of the task performed
(statement 13) by the auditor were clearly communicated. Moreover, the level
of mean agreement between CS1 and CS3 was highest on the issue of auditors’
agreement with the accounting policies used in preparing the financial
statements (statement 10) and auditors being trustworthy and reliable
(statement 14).

Table 6: Audit reliability mean distribution (CS1 and CS3)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
Users can have absolute CS1 30 3.467 1.1366 .619
assurance that financial CS3 43 3.605 1.1780 .617
statements are free from
material misstatements.
The auditor agrees with the CS1 30 4.367 .7184 .208
accounting policies used in the CS3 43 4.140 .7740 .203
financial statement.
The financial statements give a CS1 30 3.833 .8339 .592
true and fair view. CS3 43 3.721 .9083 .587
The extent of assurance given CS1 30 3.733 .9444 .428
by the auditor is clearly CS3 43 3.930 1.0997 .416
indicated in the audit report.
The extent of the work CS1 30 3.800 .8867 .489
performed by the auditor is CS3 43 3.628 1.1344 .470
communicated clearly.
Auditors are trustworthy CS1 30 4.200 .8052 .753
(reliable). CS3 43 4.140 .8042 .753

61
Table 7 presents the mean responses, standard deviation, and p-values for CS1
and CS2. The results in Table 7 are very similar to the results in Table 6 as no
expectation gap was found between CS1 and CS2. There were no significant
differences in responses on the reliability of audits and audited financial
statements between CS1 and CS2. CS1 and CS2 relatively agreed that audited
financial statements were free from material misstatements (statement 9)
though CS2 had a higher mean score (though not statistically significant)
compared to CS1. Furthermore, both CS1 and CS2 perceived the financial
statement to give a true and fair view (statement 11), and that the level of
assurance (statement 12) and the extent of the work performed (statement 13)
were clearly communicated. Consisted with the results on Table 6, CS1 and
CS2 had the highest level of agreement on issues related to auditors’
trustworthiness and reliability (statement 14) and auditors’ being in conformity
with the accounting policies contained in audited financial statements
(statement 10).

Table 7: Audit reliability mean distribution (CS1 and CS2)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
Users can have absolute CS1 30 3.467 1.1366 .510
assurance that financial CS2 38 3.658 1.2142 .506
statements are free from
material misstatements.
The auditor agrees with the CS1 30 4.367 .7184 .143
accounting policies used in the CS2 38 4.079 .8505 .135
financial statement.
The financial statements give a CS1 30 3.833 .8339 .844
true and fair view. CS2 38 3.789 .9630 .841
The extent of assurance given CS1 30 3.733 .9444 .296
by the auditor is clearly CS2 38 3.474 1.0587 .290
indicated in the audit report.
The extent of the work CS1 30 3.800 .8867 .081
performed by the auditor is CS2 38 3.368 1.0761 .074
communicated clearly.
Auditors are trustworthy CS1 30 4.200 .8517 .630
(reliable). CS2 38 4.105 .7983 .630

Table 8 provides details of the mean score, standard deviation and p-values for
the reliability statements between CS3 and CS4. The same trend observed in
Table 6 and 7 is observed in Table 8. There were no significant differences in

62
mean responses between CS3 and CS4; hence no expectation gap was
observed between both categories.

Furthermore, CS3 and CS4 agreed that audited financial statements were
absolutely free from material errors (statement 9). Additionally, both CS3 and
CS4 agreed that, audited financial statements were true and fair (statement 11).
Moreover, both CS3 and CS4 believed that, the extent of assurance given by
the auditor was clearly indicated in the audit report (statement 12).
Furthermore, both CS3 and CS4 believed the extent of the task performed by
the auditor is clearly communicated (statement 13). Consistent with the other
reliability results, CS3 and CS4 considered the auditor to be trustworthy and
reliable (statement 14) and that the auditor agreed with the accounting policies
used in the audited financial statement (statement 10).

Table 8: Audit reliability mean distribution (CS3 and CS4)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
Users can have absolute CS3 43 3.605 1.1780 .571
assurance that financial CS4 26 3.769 1.1422 .569
statements are free from
material misstatements.
The auditor agrees with the CS3 43 4.140 .7740 .444
accounting policies used in the CS4 26 3.962 1.1482 .488
financial statement.
The financial statements give a CS3 43 3.721 .9083 .897
true and fair view. CS4 26 3.692 .8376 .895
The extent of assurance given CS3 43 3.930 1.0997 .141
by the auditor is clearly CS4 26 3.538 .9892 .132
indicated in the audit report.
The extent of the work CS3 43 3.628 1.1344 .734
performed by the auditor is CS4 26 3.538 .9047 .719
communicated clearly.
Auditors are trustworthy CS3 43 4.410 .8042 .907
(reliable). CS4 26 4.115 .8638 .909

In summary, all student categories agreed that users could have absolute
assurance that, audited financial statements were free from material
misstatements, that auditors agreed with the accounting policies contained in
audited financial reports and that audited financial statements presented a true
and fair view of the financial situation of the entity. Furthermore, all student
categories believed audited financial statements clearly contained the extent of

63
assurance given by auditors likewise, the extent of the task performed by the
auditor. In general, all student categories considered auditors to be reliable and
trustworthy.

5.2.3. Usefulness of audited financial statements

Three statements about the usefulness of financial statements were posed to

respondents covering issues related to; decision usefulness, performance
monitoring and determining if the entity was well managed. Table 9 to 11
provides the mean responses, standard deviation and the two-tailed
significance level for CS1 and CS3 for all student categories.

The results in Table 9 indicates no significant gap between CS1 and CS3
concerning the usefulness of financial statements in monitoring an entity’s
performance (statement 15), and decision making (statement 16). Both CS1
and CS3 had a higher level of agreement on the usefulness of audited financial
statements in monitoring an entity’s performance and in decision usefulness.
Furthermore, CS1 and CS3 agreed that audited financial statements indicated
whether the entity was well managed. However, the mean response rate for
statement 17 was lower compared to the other two statements.

Table 9: Decision usefulness mean distribution (CS1 and CS3)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
The audited financial CS1 30 4.267 .6397 .942
statements are useful for CS3 43 4.256 .6208 .943
monitoring the entity’s
performance.
The audited financial CS1 30 4.067 .6915 .546
statements are useful for CS3 43 3.953 .8438 .532
decision making.
The entity is well managed. CS1 30 3.600 .8944 .613
CS3 43 3.698 .7411 .625

The results on Table 10 follow the same pattern as Table 9 with no significant
differences observed between CS1 and CS2. Both CS1 and CS2 accepted that
audited financial statements were useful in monitoring an entity’s performance
(statement 15) and useful in decision making (statement 16). Consistent with
the results in Table 9 it was observed that the mean response of statements 15

64
and 16 was higher compared to statement 17. However, CS1 had a higher
mean score (though not statistically significant) to all three statements
compared to CS2. CS1 and CS2 agreed that audited financial statements were
somewhat useful in evaluating whether an entity was well managed.

Table 10: Decision usefulness mean distribution (CS1 and CS2)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
The audited financial CS1 30 4.267 .6397 .278
statements are useful for CS2 38 4.079 .7491 .269
monitoring the entity’s
performance.
The audited financial CS1 30 4.067 .6915 .258
statements are useful for CS2 38 3.842 .8861 .245
decision making.
The entity is well managed. CS1 30 3.600 .8944 .460
CS2 38 3.447 .7952 .466

The results in Table 11 indicate no significant gap between CS3 and CS4 on all
three decision usefulness statements. Both CS3 and CS4 agreed that, the
audited financial statements were useful in monitoring an entity’s performance
(statement 15), useful in decision making (statement 16) and indicated if the
entity was well managed (statement 17). Furthermore, CS3 slightly had a
higher mean response rate (though not statistically significant) compared to
CS4 on the usefulness of audited financial statements in monitoring an entity’s
performance.

However, statement 17 had the least mean response level compared to the
other two statements. All student categories were slightly certain on the issue
of if audited financial statements indicated whether an entity was well
managed. Nonetheless, ABL requires auditors to make an assessment on
whether the entity is well managed as part of the audit.

Table 11: Decision usefulness mean distribution (CS3 and CS4)

Statement Level of N Mean Standard Sig. (2-
Education deviation tailed)
The audited financial CS3 43 4.256 .6208 .595
statements are useful for CS4 26 4.154 .9672 .633
monitoring the entity’s
performance.

65
The audited financial CS3 43 3.953 .8438 .832
statements are useful for CS4 26 4.000 .9381 .837
decision making.
The entity is well managed. CS3 43 3.698 .7411 .977
CS4 26 3.692 .7884 .978

5.3. Hypotheses Testing

H1: First-year students (CS1 and CS2) and final-year students who have not enrolled for
any audit course (CS4) have unreasonable expectations about the duties and responsibilities
of Auditors.

Based on the results on Table 3 CS1 maintain a neutral position regarding

auditors' responsibility for preventing and detecting fraud, management's
responsibility for preparing the annual financial reports and auditors'
responsibility for the maintenance of internal control structures of entities.
Table 6 equally indicates that CS1 slightly believe users can have absolute
assurance that financial statements are free from material misstatements.

Furthermore, based on Table 4, CS2 have a high expectation of auditors to

detect all fraud. Additionally, they seemed uncertain about auditors'
responsibility for ensuring the soundness of internal controls structures of
entities and preventing fraud, and management's responsibility in preparing the
annual financial reports. Also, based on Table 7, CS2 believe audited financial
statements give users absolute assurance that financial statements are free
from material errors.

Based on Table 5, CS4 believe auditors are responsible for detecting all fraud.
Furthermore, they were uncertain if auditors are responsible for the soundness
of the internal control structure of an entity and preventing fraud. As per
Table 8 CS4 are of the opinion that audited financial statements are completely
free from material misstatements. These uncertainties and misperceptions of
CS1, CS2, and CS4 fall outside the provisions of ISA and ABL. Therefore, we
fail to reject this hypothesis and conclude that first-year students and final-year
students without an audit education have unreasonable expectations of
auditors.

66
H2: Final-year civilekonom students specializing in accounting who have enrolled for audit
courses do not have unreasonable expectations about the duties and responsibilities of
Auditors.

As per Table 3, CS3 slightly believe auditors are responsible for detecting all
fraud and are uncertain if auditors are responsible for the soundness of
internal controls. Furthermore, CS3 believe users can obtain absolute
assurance that financial statements are free from material misstatements.

Based on these unreasonable expectations and uncertainties of final-year

students specializing in accounting, we reject H2 and conclude that CS3
slightly have some unreasonable expectations about auditors’ duties and
responsibilities.

H3: There is a significant difference in perception between first-year students with no audit
education (CS1) and final-year students with audit education (CS3) regarding the
responsibilities of auditors.

As indicated in Table 3, significant differences exist between CS1 and CS3

regarding auditors’ responsibilities especially on the issues of; auditors’
responsibility for detecting fraud, auditors’ responsibility for maintaining
accounting records, management’s responsibility for preparing the annual
financial statements and auditors’ judgment in selecting audit procedures.

Based on these differences between CS1 and CS3, we fail to reject H3.

H4: There is no significant difference in perception between first-year students with no audit
education (CS1) and first-year students with audit education (CS2).

Based on Table 4 a significant gap exists only on the issue of auditors' role in
detecting all fraud. CS2 had a higher expectation of the auditor in detecting all
fraud while CS1 were somewhat uncertain with this assertion. Table 7 and 10
shows no significant differences in responses between CS1 and CS2.
Therefore, we fail to reject H4.

H5: There is a significant difference in perception between final-year students who have
enrolled for audit courses (CS3) and final-year students who have not enrolled for any audit
course (CS4).

Based on Table 5, there is a significant difference between CS3 and CS4 on

the issue of the auditor exercising judgment in selecting audit procedures. CS3
tended to trust the auditor more in exercising judgment in selecting audit

67
procedures. However, there were no significant differences in mean responses
between CS3 and CS4 for the remaining sixteen statements.

Therefore, we reject H5 as no significant differences exist between CS3 and

CS4.

H6: Advanced audit education is the main factor which results in the differences in
perceptions between First and Final year student.

The impact of audit education was most evidenced on issues related to

auditors’ responsibilities most especially between CS1 and CS3. CS3 strongly
disagreed that, auditors were responsible for maintaining accounting records
compared to CS1 who simply disagreed. Furthermore, CS3 strongly believed
management was responsible for preparing the annual financial statements,
whereas CS1 were somewhat uncertain about this assertion. Additionally, CS3
perceived auditors as exercising judgment in selecting audit procedures
compared to CS1 and CS4. However, it was observed that CS3 had a higher
expectation of the auditor detecting all fraud compared to CS1.

The differences in perception between first-year students and final-year

students were mostly attributed to education as a pattern was observed among
students who had enrolled for audit courses and students who had not
enrolled for audit courses. Based on the results above, we fail to reject H6.

68
6. Discussion
This chapter contains an analysis of the results provided in Chapter 5 which enables us to
answer our research questions and make inferences from the tested hypotheses.

The results of this study indicate that audit education is partially influential in
narrowing the AEG in Sweden especially on issues related to auditors’
responsibilities particularly; auditors’ role in maintaining accounting records,
management’s responsibility for preparing the annual financial statements and
auditors’ judgment in selecting audit procedures. Similarly, Pierce and
Kilcommins (1996) noted that audit education was influential in narrowing the
AEG. In a related study, Grambling et al. (1996) highlighted that; students
gained a better understanding of the responsibilities and duties of auditors
with more exposure to audit courses. Thus, they concluded that audit
education was influential in narrowing the AEG. The results of our study are
partially in line with the findings of Pierce and Kilcommins (1996) and
Grambling et al. (1996).

Furthermore, the results of this study indicate that students have a differing
understanding of auditors’ responsibility to detect fraud. All student categories
expected the auditor to detect all fraud except for first-year students without
an audit education who were uncertain about auditors performing this role.
Surprisingly, final-year students who had enrolled for audit courses expected
auditors to detect all fraud. In general, students seem to expect more from
auditors than presently required by ISA, ABL, and AA. It is worth highlighting
that, Best et al. (2001), Schelluch (1996), Fadzly and Ahmad (2004), etc. all
observed an expectation gap on this issue. However, Humphrey et al. (1992)
noted that the subject of auditors detecting all fraud has been one of those
contentious issues with the longest misunderstanding in the history of the
AEG. Similarly, the findings of Robinson and Lyttle (1991) confirmed that the
fraud detection responsibility of auditors had the widest misunderstanding
even within the audit profession as some auditors considered fraud detection
as one of their duties. This misunderstanding even within the audit profession
indicates that no matter the level of audit education acquired, there is bound to
be some misunderstanding on the auditor’s fraud detection responsibility.

Furthermore, even though, all student categories agreed that auditors were not
responsible for maintaining accounting records, an expectation gap was
observed between first and final year students. It is worth highlighting that,
Best et al. (2001) similarly found an expectation gap on this issue. While final-

69
year students strongly disagreed on auditors’ role in maintaining accounting
records, first-year students simply disagreed. This resulting pattern could be
explained by the fact that, first-year students, in general, have not enrolled for
any courses encompassing auditors’ responsibilities, which resulted to them
simply disagreeing. Whereas, final-year students who had enrolled for audit
courses were aware auditors were not responsible for maintaining accounting
records based on the knowledge obtained from audit courses. Additionally,
final-year students who had not enrolled for any formal audit courses equally
strongly disagreed on the auditors’ responsibility for maintaining accounting
records. They possibly obtained such knowledge from other sources different
from university taught audit course, considering that some of them are
preparing to get to the audit job market.

Similarly, first-year students, in general, maintained a neutral position regarding

managements’ responsibility for preparing the annual financial statements. It is
worth mentioning that a neutral position is indicative of uncertainty on the
path of first-year students. Meanwhile, final-year students (with and without
formal audit education) affirmed management’s responsibility in preparing the
annual financial reports. An expectation gap was thus observed between final-
year students and first-year students on this issue which is consistent with the
findings of Best et al. (2001). The explanation for the existence of this gap is
similar to the explanation above. Final-year students with an audit education
possessed the relevant knowledge, whereas; final-year students, who had not
enrolled for any formal audit course, had obtained the relevant knowledge
about this issue from different sources. On the contrary, the doubt expressed
by first-year students could be explained by the fact that, they had not enrolled
for any audit courses which could furnish them with the necessary knowledge
set.

Furthermore, a gap was identified on the issue of auditors exercising judgment

in selecting audit procedures. First-year students slightly agreed that auditors
exercised judgment in selecting audit procedures, while final-year students with
no audit education agreed and final-year students with audit education strongly
agreed to this statement. It is worth mentioning that, this statement is
subjective with no right or wrong answers but based on students’ perception.
However, ISA-200 requires the auditor to exercise judgment in planning and
selecting audit procedures. Nonetheless, though being a subjective statement,
audit education was observed to be influential on the perception of final-year

70
students who had enrolled for audit courses as they strongly agreed auditors’
exercised judgment in selecting audit procedures.

Concerning auditors’ responsibility for the soundness of the internal control

structure of the entity and preventing fraud, all student categories expressed
uncertainty as to whether auditors were expected to perform such duties.
Previous studies such as Best at al. (2001) and Fadzly and Ahmad (2004)
similarly observed an expectation gap concerning auditors’ responsibility for
maintaining the internal control structure of the entity. Improving the
wordings of the audit report could be a solution of narrowing this gap as
suggested by Schelluch (1996). Consistent with the findings of Best at al.
(2001) and Schelluch (1996), this study equally observed an expectation gap
regarding auditors’ fraud prevention responsibility. Similar to the findings of
Schelluch (1996) it was observed that audit education had a limited influence
on students’ perception regarding both statements as final-year students with
an audit education background tended to be uncertain if auditors were
responsible for the soundness of internal controls and preventing fraud. It is
worth noting that, Low et al. (1988) equally observed that auditors’ fraud
prevention responsibility has been an area of contention over time.

All students perceived auditors as being unbiased and objective. This

statement was subjective in nature. However, ISA-200 requires auditors to
maintain ethical standards. Furthermore, section 20 of AA necessitates
auditors to be; impartial, independent, and objective. These provisions
affected the perception of final-year students with an audit education as they
had the highest mean agreement score compared to other student categories.
This statement had the highest mean response score among all student
categories compared to other audit responsibility statements signifying the
high esteem students have for auditors. Similarly, all students affirmed
management’s liability for business-related bankruptcy resulting from fraud. It
is worth highlighting that, ABL 29:1 requires management to be liable for
business-related bankruptcies only if they were intentional or resulted from
management’s negligence.

No significant differences were observed on the reliability and decision

usefulness statements among all four student categories. However, all students
slightly agreed that audited financial statements provided users assurance that
the financial statements were completely free of material misstatements.
Shockingly, final-year students who had enrolled for audit courses slightly
agreed with this assertion. This was equally an area which education had less

71
effect on the perception of students who had enrolled for audit courses.
Similarly, the statements on auditors’ trustworthiness had the highest mean
response from all student categories indicating the high esteem students hold
for auditors. In addition, the statement on auditors agreeing to the accounting
policies of the entities received a high mean response as well. It is worth
highlighting that ISA-700, paragraph 16 requires the auditor to be in
conformity with the accounting policies implemented by the entity before
issuing an unmodified audit opinion. Thus all students possessed the necessary
knowledge regarding this issue.

Concerning the decision usefulness of audited financial statements, the

statement on audited financial statements being useful in monitoring an
entity’s performance received the highest mean response followed by the
statement on the usefulness of audited financial statements in monitoring the
performance of an entity. This was an indication that, most students possessed
the necessary knowledge regarding the usefulness of audited financial
statements. However, the statement on whether audited financial statements
indicated if an entity was well managed, received the lowest response rate. All
student categories slightly agreed that audited financial statements indicated
whether an entity was well managed. Final-year students who had enrolled in
audit courses were expected to overwhelmingly agree with this statement.
However, no significant difference was observed between final-year students
with an audit education background and the other three student categories. It
is worth noting that, ABL (9:3) requires auditors to perform a detailed
examination of the administration of the board of directors and management.

A possible explanation for the observed trend between first-year students with
no education background in auditing and final-year students with an audit
background education is that most advanced audit courses do not cover in
depth the duties and responsibilities of auditors based on ISA and ABL. A
possible explanation for the high expectation of final-year students specializing
in accounting could be that such high expectations resulted from the "desire"
perspective for auditors to perform certain duties as explained by Dennis
(2010) rather than as mandated by law. In such scenarios, final-year students
with an audit education perceived a deficient performance gap or a deficient
standard gap. Thus no amount of audit education could change students’
perception on this issue as it was based on strong beliefs and the notion that
such duties were reasonable and achievable.

72
Moreover, the high expectations of student could have resulted from a lack of
proper orientation on the duties of auditors. We thus recommend that
advance audit courses for the civilekonom program should be updated to
include the nature, scope, and extent of auditors' responsibilities. It was
surprising to observe that there were final-year accounting civilekonom
students who had not enrolled for any audit courses. Thus, we recommend the
incorporation of mandatory audit courses for the civilekonom program in
accounting. Such courses will equip students with the necessary knowledge set
about the duties of auditors.

Furthermore, no significant differences were observed between first-year

students who had enrolled for an audit course and those who had not enrolled
for an audit course as hypothesized. A possible explanation for this could be
that most audit courses at the introductory level do not encompass topics
which cover the duties and responsibilities of auditors as required by ISA and
ABL. Additionally, no significant differences were observed between final-year
students who had enrolled for audit courses and those who had not enrolled
for such courses. The sole difference observed was on the issue of auditors
exercising judgment in selecting audit procedures. The reason for no
significant differences between final-year students with an audit education and
those without any audit education results from the high expectations both
student categories had of the auditors. Furthermore, both student categories
had obtained some knowledge about the responsibilities of auditors from
formal university taught audit courses and from other sources.

The most eminent area of expectation gap among all students was on the issue
that, audited financial statements gave users complete assurance that such
statements were free from material errors. Audit education had a limited
effect on this issue as students who had enrolled for audit courses believed
audited financial statements signified the entity audited was completely free
from error. It is worth highlighting that, the provisions of ISA 200 only
require the auditor to provide reasonable assurance and not absolute assurance
that financial statements are free from error.

At the center of the findings of this study is that, final-year students who had
enrolled for audit courses had lesser misunderstandings of the duties of
auditors compared to the other student categories, even though the mean
response of final-year students with audit background was higher than those
of first-year students with no audit background on the issue of auditors’ fraud
detection responsibility. Furthermore, the findings of this study indicate that

73
the eight statements on auditors’ responsibilities had the widest gap compared
to issues related to audit reliability and usefulness of financial statements.

74
7. Conclusion
This chapter presents the summary of findings, practical implications of the study, limitations
of the study and recommendations for future research.

7.1. Summary

The aim of this thesis is to evaluate the impact of audit education in narrowing
the AEG in Sweden. The study reveals that audit education plays a significant
role in narrowing the AEG in Sweden on issues related to auditors’
responsibility especially on management’s responsibility in preparing the
annual financial statements, auditors’ exercising judgment in selecting audit
procedures and auditors’ role in maintaining accounting records. Audit
education thus played a significant role in altering final-year students with an
audit background’s perception on the duties of auditors. Furthermore, the
results of this thesis confirm that students who had not enrolled for audit
courses had unreasonable expectations of the auditor. The findings of this
study indicate a major setback for accounting at the civilekonom level in
Sweden as final-year students who had enrolled for audit courses, perceived
auditor’s responsibility to include detecting all fraud and that absolute
assurance could be obtained that audited financial statements signified no
material misstatements. However, the lapses in academic training accounted
for the high expectations of final-year students who had enrolled for audit
courses and for no significant differences between first and final year students
who had not enrolled for audit courses. Additionally, the results of this study
indicate, the accounting profession enjoys a high reputation and trust from
students in Sweden. Addditionally, students concurred that audited financial
statements were useful in decision making.

The implication of this study is broader as it brings to the limelight the

loopholes of the civilekonom accounting program. This study equally
recommends measures which could be implemented to reduce the lapses
identified in the accounting curriculum of most civilekonom programs. These
measures include; the updating of current accounting civilekonom programs to
include compulsory advanced courses in auditing. Furthermore, these
advanced courses in auditing should encompass topics which deal in depth
with auditors’ responsibilities and ethical standards as required by ISA, ABL
and AA. Additionally, the audit profession and the regulator (IAASB) should
design and implement policies aimed at improving users understanding on the

75
nature, scope, and limitations of an audit through audit education, refresher
courses and other forms of audit-user communication.

7.2. Limitation

This study is limited in the scope of coverage as just 137 responses were used
for analysis and discussion. A more persuasive evidence might have been
obtained had the sample size been larger. Furthermore, the usable response
rate of 10 percent was relatively low. A larger sample size and a higher
response rate might have yielded a result different from what we had. Also,
there is a possibility that, the results obtained are not representative of the
whole student population since this study made use of convenience sampling
to make generalizations about the student population of Sweden.
Additionally, a more reliable result of the Cronbach Alpha should have been
obtained if more respondents complied with the request the complete the pilot
survey.

7.3. Recommendations

Due to the inherent limitations of this study resulting from a small sample
size, limited duration to perform the studies and financial constraints, this
study could not answer all the questions raised by previous research on the
extent of impact audit education has in narrowing the AEG. To adequately
examine the effect audit education has on the AEG, we recommend a
longitudinal research be carried out with a larger sample size through which
the impact education has on the AEG can be examined before students enroll
for an audit course which includes the duties, responsibilities and ethical issues
as required by ISA, ABL, and AA and after students enroll for such a course.
Furthermore, future research could equally dwell on the nature, content, and
scope of advanced accounting courses for the civilekonom program at
Swedish Universities. In addition, future research could empirically test the
effectiveness of other recommended measures to narrowing the AEG such as;
expanding the scope of audits, restructuring audit methodologies, and
expanding auditors’ duties and responsibilities based on the Swedish context.

76
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Appendices
Appendix 1. Spearman’s Rank Correlation Coefficient

Correlations
001 002

Spearman's rho 001 Correlation Coefficient 1,000 ,948**

Sig. (2-tailed) . ,000

N 17 17

002 Correlation Coefficient ,948** 1,000

Sig. (2-tailed) ,000 .

N 17 17

**. Correlation is significant at the 0.01 level (2-tailed).

Correlations
N1 N2

Spearman's rho N1 Correlation Coefficient 1,000 ,691**

Sig. (2-tailed) . ,002

N 17 17

N2 Correlation Coefficient ,691** 1,000

Sig. (2-tailed) ,002 .

N 17 17

**. Correlation is significant at the 0.01 level (2-tailed).

Correlations
001 002 N1 N2

Spearman's rho 001 Correlation Coefficient 1,000 ,948** ,724** ,766**

Sig. (2-tailed) . ,000 ,001 ,000

N 17 17 17 17

002 Correlation Coefficient ,948** 1,000 ,690** ,789**

Sig. (2-tailed) ,000 . ,002 ,000

N 17 17 17 17

N1 Correlation Coefficient ,724** ,690** 1,000 ,691**

Sig. (2-tailed) ,001 ,002 . ,002

N 17 17 17 17

N2 Correlation Coefficient ,766** ,789** ,691** 1,000

Sig. (2-tailed) ,000 ,000 ,002 .

N 17 17 17 17
**. Correlation is significant at the 0.01 level (2-tailed).

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Appendix 2. Cronbach’s Alpha

Case Processing Summary

N %

Cases Valid 17 100,0

Excludeda 0 ,0

Total 17 100,0

a. Listwise deletion based on all variables in the

procedure.

Reliability Statistics
Cronbach's
Alpha Based on
Cronbach's Standardized
Alpha Items N of Items
,935 ,944 4

Item Statistics
Mean Std. Deviation N

001 3,3529 1,45521 17

002 3,2941 1,31171 17
N1 3,4118 1,83912 17
N2 3,3529 1,53872 17

Inter-Item Correlation Matrix

001 002 N1 N2

001 1,000 ,957 ,783 ,806

002 ,957 1,000 ,724 ,843
N1 ,783 ,724 1,000 ,741
N2 ,806 ,843 ,741 1,000

Item-Total Statistics
Squared Cronbach's
Scale Mean if Scale Variance Corrected Item- Multiple Alpha if Item
Item Deleted if Item Deleted Total Correlation Correlation Deleted

001 10,0588 18,559 ,914 ,936 ,896

002 10,1176 19,860 ,903 ,938 ,906
N1 10,0000 16,875 ,786 ,681 ,948
N2 10,0588 18,559 ,845 ,757 ,916

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Scale Statistics
Mean Variance Std. Deviation N of Items

13,4118 32,132 5,66854 4

Appendix 3. Pilot Survey Instrument

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Appendix 4. Survey Instrument

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