Auditing Concepts and Stakeholders’ Expectations

Authors

  • Sunday A. Owolabi Babcock University, Ilishan Remo, Ogun State, Nigeria
  • Michael O. Oladiran Ajala Babcock University, Ilishan Remo, Ogun State, Nigeria

Keywords:

Auditing concepts, stakeholders, true and fair, due diligence, integrity

Abstract

The mixed reactions occasioned by disappointing top-level financial reporting failures has not dampened the unsettling loss of confidence of key players and other financial statement users on the relevance of audit and financial statements in making the right investment decisions. There is a contemporary debate trying to resolve mixed feelings and misplaced perceptions of auditing concepts in filing widened expectation gaps of auditor’s expression of opinion. Contributing to the argument involves a detailed review of auditing concepts and broadening the understanding and educating the stakeholders on the essence of auditing. In this consideration, the study employed an exploratory research approach, reviewed related materials, journals, and periodicals in the field of auditing and financial accounting. The outcome of the review showed that Auditing concepts are specific and inclusive. Auditors are guided by these concepts and standards set out by the international standards on auditing. While these concepts are valid, there are divergences and misconceptions of what stakeholders expect from the audited financial statements. The study recommended that stakeholders require audit education and understand the essence of auditors’ reporting dilemma of regulated auditing guidelines or go beyond the auditing standards to please the stakeholders’ expectations.

References

Abid, A., Shaique, M., & Haq, M. A. (2018). Do big four auditors always provide higher audit quality? Evidence from Pakistan. International Journal of Financial Studies, 68(6), 1-22.

Ahmed, M. (2017). Role and responsibilities of professional accountants. Speech in a seminar on financial reporting act, ICMAB News. The Cost and Management, 45(4), 43-54.

Ajayi, C. A. (1997). The development of the accounting profession in Nigeria. Published in accounting education in Nigeria: Challenges and Prospects – A Publication of the Society of Women Accountants of Nigeria (SWAN)

Akther, T., & Xu, F. (2020). Existence of the audit expectation gap and its impact on stakeholders’ confidence: The moderating role of the Financial Reporting Council. International Journal of Financial Studies, 8(4), 1-25.

American Institute of Certified Public Accountants (AICPA). 1978. Commission on auditors, responsibilities reports: conclusions and recommendations. New York: AICPA.

Baker, C. R., Jean, B., & Hauret, C. P. (2014). The regulation of statutory auditing: an institutional theory approach. Managerial Auditing Journal, 29(3), 71–94.

Belal, A., Spence, C., Carter, C., & Zhu, J. (2017). The Big 4 in Bangladesh: Caught between the global and the local. Accounting, Auditing & Accountability Journal, 30(3), 145–63.

Baldacchino, P. J., Tabone, N., & Demanuele, R. (2017). Materiality disclosures in statutory Auditing: A Maltese perspective. Journal of Accounting, Finance and Auditing Studies, 6(3), 116–57.

Beaver, W. (1989). Financial Reporting: An Accounting Revolution. New Jersey: Prentice-Hall Int., Inc.

Chaney, P. & K. Philipich (2002). Shredded reputation: The cost of audit failure. Journal of Accounting Research, 40(4), 1221-1245

Chen, C., X. Su & R. Zhao (2000). An emerging market’s reaction to initial modified audit opinions: Evidence from the Shanghai stock exchange. Contemporary Accounting Research, 17(3), 429-455.

Crisp, B. R. (2015). Systematic reviews: A social work perspective. Australian Social Work, 68(3), 284–295.

Fama, E. & M. Jensen (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–325.

Furedi-Fulop, J. (2017). Factors leading to audit expectation gap: An empirical study in a Hungarian context. Theory Methodology Practice: Club of Economics in Miskolc, 13(02), 13-23

International Auditing & Assurance Standard Board (IAASB). (2015a). Forming an opinion and reporting on financial statements, ISA700 Revised. New York: IAASB.

International Auditing & Assurance Standard Board (IAASB). (2015b). Communicating key audit matters in the independent auditor’s report, ISA 701. New York: IAASB.

Iwanowicz, T., & Iwanowicz, B. (2019). ISA 701 and materiality disclosure as methods to minimise the audit expectation gap. Journal of Risk and Financial Management, 61(5), 1-20.

Jensen, M. & W. Meckling (1976). Theory of a firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360

Kim, I. (2010). A theoretical examination of the role of auditing and the relevance of audit reports. Vaasan Yliopiston Julkaisuja.

Limperg, T. (1932). Theory of Inspired Confidence. University of Amsterdam.

Mansur, H., & Tangi, A. (2018). How to bridge the audit gap? Journal of Social Sciences, 7(2), 61–73.

Mohs, J. (2017). Financial reporting and the accounting expectations gap. Review of Contemporary Business Research, 6(1), 25-34

Nwaobia, A. N., Onuoha, L., & Aguguom, T, A. (2016). The new Auditors’ reporting standards and the Auditors’ expectation gap. International Journal of Advanced Academic Research, 2(11), 118-133.

Okafor, C. A., & Otalor, J. I. (2013). Narrowing the expectation gap in auditing: the role of the auditing profession. Research Journal of Finance and Accounting, 4(3), 43–52.

Olagunju, A. (2011). An Empirical analysis of the impact of auditors’ independence on the credibility of the financial statement in Nigeria. Research Journal of Finance and Accounting, 2(2), 82–99.

Olojede, P., Erin, O., Asiriuwa, O. et al. (2020). Audit expectation gap: an empirical analysis. Future Business Journal, 6(10). https://doi.org/10.1186/s43093-020-00016-x

Okpala, K. E. (2015). Stamatis generic model and audit quality in Nigeria. The Journal of Social Sciences Research, 1(8), 94-101.

Owolabi, S. A., Jayeoba, O. O., & Ajibade, A. T. (2016). Evolution and development of auditing. Unique Research of Business Management Research, 3(1), 32-40.

Owolabi, S. A., & Folarin. (2020). Big bath charges and shareholders’ wealth in Nigeria. International Journal of Business & Management, 8(4), 471-478.

Owolabi, S. A., Omotilewa, O. O. (2020). Public trust and financial reporting gap: evidence from underlined ethical issues. International Journal of Research Publication, 56(1),

Persakis, A., & Iatridis, G. E. (2016). Audit quality, investor protection and earnings management during the financial crisis of 2008: An international perspective. Journal of International Financial Markets, Institutions and Money, 41(1), 73-101.

Public Company Accounting Oversight Board (PCAOB). (2011). Concept release on possible revisions to PCAOB standards related to reports on audited financial statements and related amendments to PCAOB Standards. Washington: PCAOB.

Tian, J., & Xin, M. (2017). Literature Review on Audit Opinion. Journal of Modern Accounting and auditing, 13(6), 266-271

Salehi, M. (2008).Audit expectation gap: Concept, nature and trace. African Journal of Business Management, 5(21), 8376-8392.

Salem, M. S. M. (2012). An overview of research on auditor’s responsibility to detect fraud on financial statements. The Journal of Global Business Management, 8(2), 218-229.

Simpson, G. K., & Lord, B. (2015). Enhancing the reporting of quantitative research methods in Australian Social Work. Australian Social Work, 68(1), 375-383.

Stephen, K. (2018). Auditing’s Expectation Gap is worse than ever Financial Times. The Financial Times. January 14. Available online: https://www.ft.com (Accessed on 10 August 2020).

Stevenson, M. (2019). Can auditors close the great expectation gap for good? Pivot magazine. February 2, CPA. Available online: https://www.cpacanada.ca/en/news/pivot-magazine/2019-01-02-expectation-gaproundtable (Accessed on 10 September 2020).

Skouteris, H., McCabe, M., Fuller-Tyszkiewicz, M., Henwood, A., Limbrick, S., & Miller, R. (2016). Auditing like obesity in children in out-of-home care: A review of the literature. Australian Social Work, 64(4), 475–486.

Strandberg, T., & Grahame, K. S. (2020). An audit of literature reviews published in Australian social work (2007–2017). Australian Social Work, 73(1), 18-31, https://doi.org/10.1080/0312407X.2019.1571619

Watts, R. L., Zimmerman, J. L. (1979). The demand for and supply of accounting theories, the market for excuses. The Accounting Revie, 54(1), 273-305.

Watts, R., & J. Zimmerman (1986). Positive accounting theory. Englewood Cliffs, New Jersey: Prentice-Hall

Wei, Z., Wang, Z., Wu, Y., & Li, C. (2012). The environment of capital market, audit opinion and the cost of liability. Audit Research, 3(3), 98-105.

Wright, M. & R. Davidson (2000). The effect of auditor attestation and tolerance for ambiguity on commercial lending decisions. Auditing: A Journal of Practice and Theory, 19(2), 67–81.

Yip, P. C. W., & Pang, E. (2017). Investors' perceptions of auditor independence: Evidence from Hong Kong. E-Journal of Social & Behavioural Research in Business, 8(2), 70-82.

Zaman, M., Hudaib, M., & Haniffa, R. (2011). Corporate governance quality, audit fees and nominees of auditor independence: Evidence from Hong & Accounting. Journal of Business Finance & Accounting, 38(3), 165–97.

Published

2020-04-01

How to Cite

Owolabi, S. A., & Ajala, M. O. O. (2020). Auditing Concepts and Stakeholders’ Expectations. Indian-Pacific Journal of Accounting and Finance, 4(2), 46-60. Retrieved from http://ipjaf.omjpalpha.com/index.php/ipjaf/article/view/105

Issue

Section

Main Section

Most read articles by the same author(s)