1.0 BACKGROUND TO THE STUDY
As the stakeholders become dissatisfied with the work of the audit profession, their confidence in audited financial statements will erode with time if nothing is done to remedy the situation. Best, Buck by and Tan (2001) claim that society’s trust is the ‘heart-beat of a profession’. Hence, if such trust disappears or is eroded in any way, the outcome is likely to involve skepticism and the depletion of value attributed to such profession. Although fraud detection has been taking out of the primary objectives of the auditing profession, the 5th Global Economic Crime Survey by Price water house Coopers (2009) reports that fraud remains a pervasive business risk and almost every firm is subjected to occupational fraud in their daily businesses, leading to huge losses for businesses and society. There is no gainsaying that the audit profession is a social functions which provides services to associated parties and is based on confidence between the professional auditor and those parties.the importance and responsibilities of auditing has increased in recent years due in part to reliance of other parties on the data included in the financial statement and audit reports produced by the auditor.
Despite the importance of the audit profession, it has been subjected to increased criticisms in the performance of its role and function, as a result of the challenges the accounting profession has faced a long time, the issue of Audit Expectation Gap (AEG) :which is the “dierence between what the public and users of financial statements perceive the role of an audit to be and what the audit profession claim is expected of them during the conduct of an audit (Ojo, 2006). The AEG has become a serious issue because of the damage it could potentially bring to the essence of auditing profession, this is why it has been increasing in its significance since it was identified in the mid 1970s.
Pierce and Kilcommins (1996) also defined the audit expectations gap as when external auditors’ understanding of their role and duties is compared against the expectations of user groups and the general public. Moreover, Audit as we all know refers to the formal examination, correction, and oicial endorsing of financial accounts, especially those of a business, undertaken annually by an Accountant., yet the accounting profession in Nigeria has been under intense pressure due to rising public expectations which is as a result of series of financial failures that occurred during the recessionary years of the late 80’s and the early 90’s (Ekwueme, 2013:14). These financial failures happened too quickly aer an ‘unqualified’ audit report was issued by the external auditors. Koh and Woo (1998), noted that in recent years, some spectacular and well-publicized corporate collapses and the subsequent implication of the reporting auditors have highlighted the audit expectation gap.
In reality, the unqualified opinion is wrongly seen as a certification that the firm or enterprise is solvent, liquid and has the capacity to adapt to the dynamics of the environment. Any subsequent failure of business resulting from management misjudgment, fraudulent practice, economic instability, inconsistency in micro and macroeconomic policies etc are viewed as failures of auditors (Adeniji, 2004:510). Furthermore, Stakeholders too often see the audit as a relatively discrete event when, in fact, the processes and controls that ensure the broader integrity of the audit comprise much more than the audit opinion itself. These processes and controls range from the company’s collection and recording of financial information to the actual audit, through to the issuance of the financial report. As a result, the quality of financial reporting – so critical to investor confidence and transparency – is directly dependent on the quality of the audit. The value of an expert, independent opinion on a company’s financial statements simply can’t be underestimated.
And the simple knowledge that the audit is coming, combined with the requirements and internal controls that exist around it, exerts a preventative, quality-control pressure on financial statement preparation – even before the audit takes place, yet These perceptions draw a line that needs to define the role of the auditor in protecting the interest of shareholders and ensuring that there is good corporate governance. Owners of business need auditors, more than ever, to detect and prevent fraud. Perhaps, this is due to the expanding nature of modern day businesses. Clients need value added and not an auditor that will vouch and does the normal trade test (Nwokolo, 1998:25). Additionally, auditors have been known for high integrity and objectivity as well as their commitment to public interest. In relation to this view, Hillier (2000) stated that diverse clients now expect them to provide more services than just performing statutory audit and attesting to the credibility of financial statements.
1.2. STATEMENT OF PROBLEM
The global search for a solution to the audit expectation gap by auditor has become strident, the credibility of the auditing profession appears to be at it lowest ebb. In the United State of America, the profession has lost its self regulatory status, in these circumstances, the profession is bestirring itself and the result is a welter of fresh suggestion and initiatives aimed at solving the expectation gap problem. Some of the suggestion appears mundane while some appears controversial. 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 profit were overstated by a large sum with the knowledge of auditors, and the subsequent indictment of the accounting firm of Akintola William Deloite for audit failure, has further aggravated the expectation gap conundrum.
The criticism of auditors in Nigeria by users of audited financial statements has stirred many a response both from the profession and statutes. It seems the users have a different idea of what auditing should be. This is what has led to the audit expectation gap. The existence of this gap has been caused by many factors [communication factors and audit failures]. In this changing world, business environment requires that auditor’s responsibilities be increased to include fraud detection/prevention. Also, users want to be able to rely on audited financial statements for investment decision making. They also desire the absolute independence of the auditor because absence of it may reduce performance. Users also may have a different interpretation of the nature and meaning of audit report. The crucial nature of auditing in ensuring the integrity and reliability of financial information cannot be overemphasized. It is for this reason that the canons of many countries require the attestation of financial statements by external auditors.
Unfortunately, there are criticisms of the auditor from which opinions have emerged over the years as a result of companies that have failed. This criticism of auditors in Nigeria by users of audited financial statements has stirred many a response both from the profession and statutes. It seems the users have a different idea of what auditing should be. This is what has led to the audit expectation gap. The existence of this gap has been caused by many factors. Moreover, the business environment is changing and this requires that the auditor’s responsibilities be increased to include fraud detection/prevention. Also, users want to be able to rely on audited financial statements for investment decision making. They also desire the absolute independence of the auditor because absence of it may reduce performance. Users also may have a different interpretation of the nature and meaning of audit report messages. These are some of the factors that contribute to the audit expectation gap