The Audit Reporting Debate: Seemingly Intractable Problems and Feasible Solutions

Abstract

While the audit reporting debate has a long history, a number of recent regulatory initiatives and policy reviews increase the likelihood of change in this area. The purpose of this study is to use this momentum and examine whether there is consensus between audit report users and auditors with regard to the form and content of the audit report. This seems necessary because past audit reporting reforms have failed due to a lack of common ground. Based on interviews with users and auditors, we conclude that reaching a level of consensus seems feasible. Using these insights, we propose an alternative audit reporting model that may significantly reduce the information gap between users and auditors and improve transparency on the quality of audit practice.

Addressing Information Needs to Reduce the Audit Expectation Gap: Evidence from Dutch Bankers, Audited Companies and Auditors

“…Second, we observe differences in how stakeholder groups appreciate often‐mentioned suggested solutions that improve the auditor's report (Turner et al ., , ; IAASB, ; Vanstraelen et al ., ). The results show that bankers consider all additional information to be provided by the auditor as ‘important’.…”

The Changing Face of the Auditor's Report: Implications for Suppliers and Users of Financial Statements

“…; Vanstraelen et al. ). There is also evidence of significant perceptual differences between auditors and users with respect to the messages conveyed by the extant audit report (Innes et al.…”

Quis Auditoret Ipsos Auditores? Can Auditors Be Trusted?

“…As described above the difference between auditors and others as to the understanding of the role and objective of the audit is known as the audit ‘expectation gap’. Much has been written about this gap and what should be done to narrow, if not close, it (see, for example, AICPA ; ASCPA and ICAA ; Rezaee ; Porter et al ; Vanstraelen et al ). In general, research about this gap indicates that investors and other non‐auditors have viewed the objective of an audit as being something much more than determining compliance with a reporting framework; rather the detection of fraud and acting as a ‘public watchdog’ are viewed as the main objective and role of the audit and auditor (see, for example, Epstein and Geiger ; McEnroe and Martens ).…”

“…However, Messier Jr () has implicitly invoked the application of EBP in an audit practice context in his call for more attention to ‘task‐level’ research (i.e., research that targets the ‘specific activities that auditors perform in conducting an audit’ (Messier Jr : fn. 3, 325)) while Vanstraelen et al (: 208) have similarly called for research that casts ‘more light on auditors’ practical work, judgments and findings’ . Messier Jr (: 321) argues that there are significant opportunities for research to provide evidence that could inform audit practices, such as planning, assessing risks and materiality, understanding and auditing internal controls, auditing business processes, completing the audit, evaluating the audit results, and issuing an audit report.…”

“…Reliance on the expectation gap as an explanation for the trust gap has been criticised as ‘a convenient argument preventing much progress or reforms in the field of audit reporting’ (Vanstraelen et al : 195) as its basis is an assumption that users of financial reports do not understand the audit process. However, modern capital markets are inhabited by sophisticated investors who possess sufficient expertise to understand auditing (Porter et al ; Vanstraelen et al ) and it has been suggested that ‘the audit expectation gap is much more of a performance gap than an education gap’ (Vanstraelen et al : 195). The sheer persistence of the expectation gap suggests that there must be something more fundamental driving that gap than just the education of lay people.…”