ABSTRACT
This research set out to find out
the perception of Members of ICAN, an important stakeholder group, on the fresh
initiatives at bridging the audit expectation gap problem. Four hypotheses were
formulated and tested in the course of this study. A survey design approach was
adopted for the study .Out of a population of 23,324, 159 ICAN MEMBERS were
randomly selected. The t - test statistic and the Chi square were used to test
the hypotheses of the study. The study found out, among others, that 24 out of
the 29 methods on offer for bridging the audit expectation gap and articulated
in the questionnaire were acceptable to members of ICAN. Consequent upon the
findings, it was recommended that ICAN should commence the process of
implementing some of the methods within its purview and approved by its members
as capable of ameliorating the expectation gap problem.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Audit expectation gap is the gap between the role of
an auditor as understood by the auditor and the users of financial statements
.It is a gap between what the auditor is
doing
and what the society expects him to do creating the impression that the
statutory objective of audit is not meeting the social needs of the populace.
The functions performed by the accounting profession are vital to the growth
and stability of the financial market, whether at the global level or at the
local level (Egbiki, 2006: 56 - 57).
An audit has been defined as an examination of the financial statements
of an enterprise by an independent expert (the auditor) with a view to
attesting that such financial report (in his opinion) show a true and fair view
of the state of affairs of that enterprise for the period under review. The
contribution of the auditor is to provide credibility to information. This
means that the information can be believed and that it can be relied upon by
outsiders. The outsiders include shareholders and government regulators. Others
are creditors and customers. Usually these third parties use the information to
make various economic decisions. An example of this decision is whether to
invest in the organization. Economic decisions are made under conditions of
uncertainty as there is always a risk that the decision maker will select the
wrong alternative and incur a significant loss. The credibility added to the
information by the auditors actually reduces the decision makers’ risk
Therefore auditors reduce information risk, which is the risk that the
financial information used to make a decision is materially misstated. The
legal position is that an audit is carried out to enable an auditor form an
opinion as to the truth and fairness of financial statements presented to him
by his client’s management and to report accordingly. The accuracy of a
company’s accounts is the sole responsibility of the directors. However, the
accounting profession in Nigeria and other climes has been under intense
pressure due to rising public expectations.
These expectations have been fuelled largely as a result of demise of
some financial institutions in the late 80’s to early 1990’s and very recently
for banks that failed to meet the statutory minimum recapitalization to the
tune of N25 billion .Yet other banks failed
Audit failures have been blamed, partly, on greed on the part of
auditors. In defense, auditors have often replied that they are not primarily
responsible for detecting frauds and errors. However, shareholders, depositors
and most of the general public remain unimpressed as they query the value of a
watchdog that cannot bark let alone bite. Most people cannot seem to accept the
legally defined status. They would wish to see an auditor’s certificate as an
assurance that all that needs to be known about the financial transactions of a
company have been disclosed to the auditor. In the same vein, an auditor’s
signature should be taken to mean that all is well with the health of the
institution concerned and that there has been no fraud or other malfeasance.
This, however, is often not the case.
Two components of the audit expectation gap have been identified –
communication gap and performance gap. Communication gap has to do with what
the auditors think is their role and what the members of the public perceive
should be the role of auditors. Performance gap, on the other hand, occurs when
public expectations are reasonable but the auditor’s performance does not
fulfill them. This means that there is a short fall in the auditor’s
performance. (Okafor and Okaro, 2009: 11).
In the past, attempts have been made to bridge the gap by the profession.
For example attempts have been made to educate users of the limitations of the
modern audit process. As part of the process of educating the user of audited
accounts, the modern audit report usually tries to delineate clearly the
respective responsibilities of the directors
However, like a sore thumb, the gap appears to have remained as wide as
ever. At the local level, the recent scandal in Cadbury Nigeria Plc whereby
profits were overstated by a whopping sum of over N13 billion, and the
subsequent indictment of the accounting firm of Akintola Williams Delloite for
audit failure, has further aggravated the expectation gap conundrum.
The international community has not been spared either. The collapse of
the energy giant Enron in the United States of America in 2002 as a result of
what was obviously a case of audit failure and wobbly accounting standards has
again ignited a global search for tools to at least narrow the expectation gap.
The literature is awash with fresh suggestions and initiatives aimed at
tackling the problem of expectation gap. ICAN MEMBERS are a very important
stakeholder group in the search for a solution to the expectation gap problem.
Their cooperation or lack of it can have a tremendous effect on the resolution
or otherwise of the problem. This work is therefore an attempt to document in
Nigeria, the perception of ICAN MEMBERS as to the initiatives for bridging the
audit expectation gap problem.
1.2 STATEMENT OF RESEARCH PROBLEM
The global search for a solution to the audit expectation gap problem has
become strident. The credibility of the accounting profession appears to be at
its lowest ebb. In the United States of America, the profession has lost its
self regulatory status .In this circumstance, the profession is bestirring
itself and the result is a welter of fresh
1.3 OBJECTIVES OF STUDY
This study has the general objective of ascertaining the perception of
ICAN MEMBERS in Nigeria on the vexed issue of bridging the audit expectation
gap. The specific objectives of this study are as follows
1.
To
ascertain the perception of ICAN MEMBERS in Nigeria as to the suggestions for
bridging the expectation gap.
2.
To test
the popularity, among ICAN MEMBERS in Nigeria, of the suggestion that
convocation of all stakeholders dialogue to negotiate the issues involved in
the audit expectation gap problem has become necessary
3.
To elicit
the opinion of ICAN MEMBERS in Nigeria as to whether undue delay by the
Accounting profession in Nigeria may lead unwittingly to government legislative
interference.
4.
To enquire
into the attitude of ICAN MEMBERS in Nigeria as regards enlisting the
co-operation of rival accounting professionals in Nigeria in the search for
solution to the audit expectation gap problem.
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Item Type: Postgraduate Material | Attribute: 82 pages | Chapters: 1-5
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