The audit expectation gap in the capital markets



Don't use plagiarized sources. Get Your Custom Essay on
The audit expectation gap in the capital markets
Just from $9/Page
Order Essay

Question 1

  1. Discuss the main components of the audit expectation gap in the capital markets.

Several scholars have tried to describe the audit expectation gap from a different perspective. Liggio describes the audit expectation gap as the difference in users’ and auditors’ perception of the auditors’ performance level during the auditing process. Porter defines the audit expectation gap as the gap that exists between auditors’ society expectation and auditors’ performance. Association of Chartered Certified Accountants (ACCA) defines the audit expectation gap as the difference between what society thinks the auditors do and what they want them to do. Therefore, the auditing expectation gap in the capital market refers to the difference in auditing perception from the public and auditors’ perspectives.

From Porter’s school of thought, the components of the audit expectation gap are reasonable gap and performance gap. The reasonable gap component relates to the difference in what the public expects the auditors to achieve and what the auditors are reasonably expected to accomplish. Performance gap refers to the difference in what the public reasonably expects auditors to accomplish and what the auditors are perceived to achieve. The performance gap component is divided into deficient standard and deficient performance. Deficient standard is the gap between what is reasonably expected of auditors and the auditors’ stipulated duties within the laws and professional standards. Deficient performance refers to the difference in the expected standards of performance of auditors’ existing duties and the auditors’ perceived performance by the public.

From the Association of Chartered Certified Accountants (ACCA), the components of the audit expectation gap include knowledge gap, performance gap, and evolution gap. Knowledge gap refers to the difference between what the public thinks the auditor does what they do, and it considers the cognizance that the public can misunderstand the scope of work of the auditors. The performance gap focuses on auditors’ failure to comply with the regulations and standards.  Therefore, the performance gap occurs due to inadequate concentration on audit quality, variation in the interpretation standards, the complexity of certain auditing standards, and overzealous regulation requirements between practitioners and regulators. Finally, the evolution gap concentrates on auditing areas that require evolution based on the public demand, technological changes, and overall auditing process.

  1. LDF Co’s bad debt provision audit
  2. Discuss the difference between the modified and unmodified audit reports.

A modified audit report is a type of audit opinion issued on an entity’s financial statements when the auditing process finds that the statements are not prepared according to the accounting standards, and the presentation does not fairly reflect the accounting framework in use. An unmodified audit report is a type of audit opinion that auditors issue on financial statements prepared in all material respect and compliant with the accounting standards and applicable regulations.

The auditor gives a modified opinion when the firm’s financial statements do not reflect a true and fair view of the company’s materials. On the other hand, the auditors give an unmodified opinion when the financial statement reflects a true and fair view of the firm’s current financial position. The auditors use different methods, techniques, and procedures to evaluate the financial statement for material misstatement. The unmodified opinion will be given when the evaluation ascertains that the information in the financial statement is materially correct; however, when the information shows incorrect information, a modified opinion would be given.

The modified opinion is classified into three sub-audit opinions depending on the level of modification, which bases the classification on the level of misstatement, pervasiveness, and sufficiency of audit evidence. The sub-audit opinion categories include qualified audit opinion, adverse audit opinion, and disclaimer audit opinion. Unmodified opinion, on the other hand, lacks sub-audit opinions.

Modified auditing report occurs when the auditor adds or deletes any information to the suggested financial statement report format and content. In contrast, an unmodified auditing report occurs when the auditor releases an audit report with the same format or content as the suggested financial statement report.

  1. Discuss the above issue and describe the impact of this issue on the auditors’ report, if any, should this issue remain unresolved.

The issue in the case relates to material misstatement. The auditor’s evaluation shows that LDF Co included £500,000 into the provision of bad debts, which did not qualify for the provision for bad debts according to the applicable accounting standards. Inclusion of the amount to the provision of bad debts would increase the firm’s provision of bad debts that would impact the firm’s income statement and balance sheet, reducing the profit and value of trade receivables, respectively.

Since the inclusion of the amount to the provision of bad debt fails to adhere to the applicable accounting standards, the auditor will issue a modified report indicating the amount and reasons why its inclusion in the materials in the provision of bad debts categories is inappropriate. Moreover, since the management deems the provision of bad debts appropriate for the firm, the auditor will have no option but to issue a modified opinion stating that the financial statement does not reflect a true position of the firm since the profits have been reduced by £500,000.

The issue should be resolved since the inclusion of the £500,000 unnecessarily increases the firm’s expenses reducing the company’s profitability. Moreover, issuing a modified opinion by the auditor will reduce the investor-attractiveness of the firm since receiving a modified audit report negatively affects the firm’s cash flow investment sensitivity.

Question 2

  1. Discuss the above statement by explaining the differences between the evidence sufficiency and appropriateness. Your answer should include a discussion of two types of audit evidence.

Sufficient appropriate evidence in auditing is evidence that is of quantity, quality, and reliability. Evidence of the required quantity is considered sufficient, while reliable and high-quality evidence is considered appropriate. Therefore, evidence sufficiency relates to the quality of evidence, while evidence appropriateness relates to the quality and reliability of evidence.

Auditor’s conclusion should be based on sufficient evidences. Auditing evidence is considered sufficient when evidence is in line with material misstatement risk, item’s materiality, internal control systems and nature of accounting, auditors knowledge and business experience, control test results, population size tested, and evidence reliability.

Auditing evidence is considered appropriate when they are reliable and relevant. To achieve evidence reliability, the auditors should focus on obtaining auditing evidence from trustworthy and dependent sources. Evidence is considered reliable when obtained from an independent external source, internally generated, obtained by the auditor, and in original and documentary forms. For audit evidence to be relevant, the evidence must address the objective and purpose of the auditing procedure.

The type of audit evidences that relates to evidence sufficiency and appropriateness is documentary evidence and confirmation, respectively. Documentary evidence is a type of audit evidence that focuses on gathering documents regarding different auditing processes. Confirmation entails sending circularization to independent external sources to confirm the information in the financial statement.

  1. You are an auditor manager of Earl & Co and are planning the audit of Darjeeling Co.
Issue Audit Risk Auditors Response
Including the $0.9m expenses on new product line development to intangible assets Accounting for all the expenses as intangible assets may lead to the risk of over-recognizing and under-recognizing intangible assets Perform a cost analysis and classify various costs correctly.

Ensure that company’s cost recognition is consistent with IAS 38

The company intends to undertake a stock exchange listing in the next 12 months. Managers may be tempted to distort the company’s financial statements to show that the company is on the right performance track. The auditing team should maintain professionalism and be skeptical of manipulation threats.

The auditing team should carefully analyze the material estimate and assessment.

Establishing promise price to compete with the competitors and customers encouraged to claim the difference if any firm offers the products at a lower price. Since payables are subjective and highly judgmental, their evaluation requires numerous requirements that the company’s directors may not accurately estimate; therefore, the company risk overstating revenue and under or over recognizing profits and liabilities. The auditing team should review the accounting documents to confirm the reasonableness of the assumptions.

Ensure the accounts payable are recognized and valued appropriately.

Stopping further sales and recalling the faulty paint products. The company risks over-recognizing revenue, under-recognizing liabilities, and misrepresenting inventory value. Ensure that the sales are properly reviewed, and the recalled products are removed from general sales and inventory.


Purchase and installation costs of the new manufacturing line asset are included in the property plant and equipment. The company risk including maintenance and servicing costs, which are not part of the fixed asset costs Review the new manufacturing line documents to extract maintenance and servicing costs.


Question 3

  1. Describe the steps that Salt & Pepper should take in relation to Cinnamon prior to accepting the audit.

Salt & Pepper Company should consider the compliance with ACCA’s code of ethics and conduct and the local legislation issues such as conflict of interest, which is a threat to the auditing process.

Salt & Pepper should ascertain whether they have the competence, resources, skills, and knowledge to perform the auditing processes adequately.

Salt & Pepper need to gather adequate information on the Cinnamon director’s reputation and integrity.

The organization should consider the level of risk attached to Cinnamon’s auditing process and whether the audit fee is sufficient to carry out the auditing process.

The organization should gather the necessary information regarding the auditing process, such as obtaining information from the previous auditors on why they should accept or not accept the audit invitation.

  1. Identify and explain five ethical threats which arise from the above actions
Issue Ethical Threat Auditor’s response
The company is running an advertisement that its auditing process will not last longer than two weeks, thus minimizing company disruption. Lack of compliance with ACCA’s code of ethics and standards Stop the new advertising strategy since it is not in accordance with the code of ethics and standards
Offering all new clients free accounts preparation service for the first year of the engagement Overworking of the auditing team Ensure that the auditing process is undertaken by separate auditing teams
Failure to update the engagement letters of existing clients Lack of compliance with the ISA 210 on the agreement to auditing engagement terms The company should update the engagement letters to comply with ISA 210
The proposal of an existing client basing the year’s auditing fee on their final pre-tax profit percentage. The proposal creates a contingent fee, which results in a self-interest threat that is irreducible to any adequate level The company should decline the proposal since it breaches the ACCA’s code of ethics and conducts.
The company intends to use junior staff in the auditing process of Cinnamon The use of junior staff will result in incompetency in assessing the adequacy of the work performed, which may result in the risk of giving incorrect audit opinion The company should review the auditing staff for Cinnamon to include experienced members.



Olojede, P., Erin, O., Asiriuwa, O., & Usman, M. (2020). Audit expectation gap: an empirical analysis. Future Business Journal, 6(10).

Andersson Manglaris, A., & Brewitz, T. (2020). The Audit Expectation Gap: Exploring the auditor’s roles and responsibilities from knowledge, performance, and evolution gap perspectives.

Marden, R. E., & Brackney, K. S. (2009). Audit risk and IFRS. The CPA Journal79(6), 32.

Ilemona, S. A., & Nwite, S. (2021). Accounting Code of Ethics: Severity Analysis of Threats to Compliance of Auditors in Nigerian Business Environment. Journal of Finance and Accounting, 9(1), 16–22.


Get Professional Assignment Help Cheaply

Buy Custom Essay

Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?

Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.

Why Choose Our Academic Writing Service?

  • Plagiarism free papers
  • Timely delivery
  • Any deadline
  • Skilled, Experienced Native English Writers
  • Subject-relevant academic writer
  • Adherence to paper instructions
  • Ability to tackle bulk assignments
  • Reasonable prices
  • 24/7 Customer Support
  • Get superb grades consistently

Online Academic Help With Different Subjects


Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.


Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.

Computer science

Computer science is a tough subject. Fortunately, our computer science experts are up to the match. No need to stress and have sleepless nights. Our academic writers will tackle all your computer science assignments and deliver them on time. Let us handle all your python, java, ruby, JavaScript, php , C+ assignments!


While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.


Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.


In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.


Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.


We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!


We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.


Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.

What discipline/subjects do you deal in?

We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.

Are your writers competent enough to handle my paper?

Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.

What if I don’t like the paper?

There is a very low likelihood that you won’t like the paper.

Reasons being:

  • When assigning your order, we match the paper’s discipline with the writer’s field/specialization. Since all our writers are graduates, we match the paper’s subject with the field the writer studied. For instance, if it’s a nursing paper, only a nursing graduate and writer will handle it. Furthermore, all our writers have academic writing experience and top-notch research skills.
  • We have a quality assurance that reviews the paper before it gets to you. As such, we ensure that you get a paper that meets the required standard and will most definitely make the grade.

In the event that you don’t like your paper:

  • The writer will revise the paper up to your pleasing. You have unlimited revisions. You simply need to highlight what specifically you don’t like about the paper, and the writer will make the amendments. The paper will be revised until you are satisfied. Revisions are free of charge
  • We will have a different writer write the paper from scratch.
  • Last resort, if the above does not work, we will refund your money.

Will the professor find out I didn’t write the paper myself?

Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.

What if the paper is plagiarized?

We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.

When will I get my paper?

You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.

Will anyone find out that I used your services?

We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.

How our Assignment Help Service Works

1. Place an order

You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.

2. Pay for the order

Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.

3. Track the progress

You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.

4. Download the paper

The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.

smile and order essay GET A PERFECT SCORE!!! smile and order essay Buy Custom Essay

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more
error: Content is protected !!
Open chat
Need assignment help? You can contact our live agent via WhatsApp using +1 718 717 2861

Feel free to ask questions, clarifications, or discounts available when placing an order.
  +1 718 717 2861           + 44 161 818 7126           [email protected]
  +1 718 717 2861         [email protected]