A holistic approach is needed to narrow the audit expectation gap for the benefit of public interest, according to a new report issued by the Association of Chartered Certified Accountants (ACCA), Chartered Accountants Australia and New Zealand (CA ANZ), Chartered Professional Accountants of Canada (CPA Canada) and the Canadian Auditing and Assurance Standards Board (CAASB).
The report, Closing the expectation gap in audit – the way forward on fraud and going concern: A multi-stakeholder approach, offers recommendations based on research with key players of the financial reporting ecosystem. These include financial statement preparers, auditors, regulators, boards and audit committees, and investors.
The research found that factors contributing to the expectation disparity include gaps in knowledge, performance and the evolution of audit.
To tackle fraud, a main recommendation is to encourage the involvement of forensic specialists in risk assessment where a high risk is identified, but auditors should still apply their professional judgement when determining how to respond to identified fraud risks. Participants noted that mandating the involvement of forensic specialists may widen the expectation gap, as this could lead to a ‘box-ticking’ approach.
The report concluded that it is not necessary to have a ‘suspicious mindset’ for enhanced fraud identification when planning and performing the audit; instead, ACCA, CA ANZ, AASB and CPA Canada suggested that the IAASB and national standard setters consider areas where the auditing standards could be enhanced to guide audit practitioners in the application of professional scepticism.