ASSESSMENT OF AUDIT EXPECTATION GAP IN NIGERIA, AUDITOR’S CONNECTION

CHAPTER ONE

INTRODUCTION

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, Buckby 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 “difference 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 official 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 oen 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.