Expectation Gap – NBC Institute

AAA – Nov 2011 – L3 – SAII – Q14 – Ethical Issues in Auditing

Definition of the gap between public expectation and auditor conduct.

Question

A situation where public expectation is reasonable but the auditor’s conduct does not meet the required standards is known as …………………..

Answer

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Tags: Auditor Conduct, Ethical Standards, Expectation Gap, Public Expectation
Level: Level 3

Topic: Ethical Issues in Auditing
Series: NOV 2011

AAA – May 2024 – L3 – SB – Q4 – Forensic Auditing

Discuss auditor responsibility for fraud detection, strategies for closing the expectation gap, differences between review and audit reports, and required reporting for managing fraud.

Question

Demmy Global Limited, a growth-oriented company controlled by its Managing Director, Mr. Longe, sells mobile smartphones through sales agents on a commission basis. Phones are supplied on a sale or return basis, with sales recognized upon receipt by agents. The company’s growth appears rapid due to fraudulent practices by Mr. Longe, including:

Fictitious agents responsible for 25% of revenue.
Year-end dispatch of inventories to agents with post-year-end returns recorded as repurchases.
Capitalization of 20% of cost of sales by falsifying purchase invoices with suppliers.
Director bonuses linked to profits, encouraging uncritical acceptance of rapid growth.

The fraud was concealed by falsified records, bribery, and restrictions on auditor access to corroborate sales and verify contracts.

The external auditor is now sued by a bank that granted a loan to Demmy Global Limited based on interim financial statements reviewed by the auditor, for which a review report was issued.

Required:

Discuss the extent to which an auditor is responsible for detecting fraud and error, and the external auditor’s procedure where fraud or error is suspected. (7 Marks)
Advise the auditor on strategies to close the expectation gap. (5 Marks)
Explain how the ‘review report’ issued by the auditor on the interim financial statements differs in terms of its level of assurance from the auditor’s report on the year-end financial statements. (2 Marks)
Evaluate the circumstance and nature of the reports that would have been necessary for the auditor based on the activities of the Managing Director. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit report, Expectation Gap, External Auditor, Fraud Detection, Management Fraud, Responsibility, Review Report
Level: Level 3

Topic: Forensic Auditing
Series: MAY 2024

AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability

Discuss the expectation gap, strategies to address it, and the role of professional skepticism in auditing financial statements.

Question

Audit firms have been castigated over the years by the public whenever their clients have any financial or operational crises. The potential liability of auditors has also become an important topic in recent years due to the growing complexity of the business and legal environment and an increase in legal actions against auditors. One reason put forward to explain the high number of legal actions against auditors is the “expectation gap.”

Required:

a) Explain “expectation gap” and describe its THREE main elements. (5 Marks)

b) Discuss the strategies that could assist in closing the expectation gap. (10 Marks)

c) i. Explain briefly the concept of professional skepticism. (2 Marks)
ii. Evaluate the importance of professional skepticism in the audit of financial statements. (3 Marks)

(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit quality, Auditor Liability, Expectation Gap, Legal Environment, Professional Skepticism, Public Perception, Strategies to Close Gap
Level: Level 3

Topic: Auditor’s Legal Liability
Series: MAY 2018

AA – Nov 2019 – L2 – Q2 – Ethical Issues in Auditing

Discuss the concept of expectation gap in auditing and the reasons an auditor may not detect fraud.

Question

The Financial Reporting Council of Kalagi, when performing a review of the financial statements of Yakoyo Plc., detected some errors and disclosure deficiencies which were brought to the attention of the management of the company. The management put the blame on the company’s auditors and accused them of negligence.

You are a chartered accountant and an informed shareholder of the company. You are required to explain:

a. “Expectation gap” in audit (5 Marks)

b. How the expectation gap can be bridged (7½ Marks)

c. Why an auditor may not detect fraud (7½ Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit, Auditor Responsibilities, Expectation Gap, Fraud Detection
Level: Level 2

Topic: Ethical Issues in Auditing
Series: NOV 2019

AAA – Nov 2011 – L3 – SAII – Q14 – Ethical Issues in Auditing

Definition of the gap between public expectation and auditor conduct.

Question

A situation where public expectation is reasonable but the auditor’s conduct does not meet the required standards is known as …………………..

Answer

Find Related Questions by Tags, levels, etc.

Tags: Auditor Conduct, Ethical Standards, Expectation Gap, Public Expectation
Level: Level 3

Topic: Ethical Issues in Auditing
Series: NOV 2011

AAA – May 2024 – L3 – SB – Q4 – Forensic Auditing

Discuss auditor responsibility for fraud detection, strategies for closing the expectation gap, differences between review and audit reports, and required reporting for managing fraud.

Question

Fictitious agents responsible for 25% of revenue.
Year-end dispatch of inventories to agents with post-year-end returns recorded as repurchases.
Capitalization of 20% of cost of sales by falsifying purchase invoices with suppliers.
Director bonuses linked to profits, encouraging uncritical acceptance of rapid growth.

The fraud was concealed by falsified records, bribery, and restrictions on auditor access to corroborate sales and verify contracts.

The external auditor is now sued by a bank that granted a loan to Demmy Global Limited based on interim financial statements reviewed by the auditor, for which a review report was issued.

Required:

Discuss the extent to which an auditor is responsible for detecting fraud and error, and the external auditor’s procedure where fraud or error is suspected. (7 Marks)
Advise the auditor on strategies to close the expectation gap. (5 Marks)
Explain how the ‘review report’ issued by the auditor on the interim financial statements differs in terms of its level of assurance from the auditor’s report on the year-end financial statements. (2 Marks)
Evaluate the circumstance and nature of the reports that would have been necessary for the auditor based on the activities of the Managing Director. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit report, Expectation Gap, External Auditor, Fraud Detection, Management Fraud, Responsibility, Review Report
Level: Level 3

Topic: Forensic Auditing
Series: MAY 2024

AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability

Discuss the expectation gap, strategies to address it, and the role of professional skepticism in auditing financial statements.

Question

Required:

a) Explain “expectation gap” and describe its THREE main elements. (5 Marks)

b) Discuss the strategies that could assist in closing the expectation gap. (10 Marks)

c) i. Explain briefly the concept of professional skepticism. (2 Marks)
ii. Evaluate the importance of professional skepticism in the audit of financial statements. (3 Marks)

(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit quality, Auditor Liability, Expectation Gap, Legal Environment, Professional Skepticism, Public Perception, Strategies to Close Gap
Level: Level 3

Topic: Auditor’s Legal Liability
Series: MAY 2018

AA – Nov 2019 – L2 – Q2 – Ethical Issues in Auditing

Discuss the concept of expectation gap in auditing and the reasons an auditor may not detect fraud.

Question

You are a chartered accountant and an informed shareholder of the company. You are required to explain:

a. “Expectation gap” in audit (5 Marks)

b. How the expectation gap can be bridged (7½ Marks)

c. Why an auditor may not detect fraud (7½ Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit, Auditor Responsibilities, Expectation Gap, Fraud Detection
Level: Level 2

Topic: Ethical Issues in Auditing
Series: NOV 2019

Question Tag: Expectation Gap

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AAA – Nov 2011 – L3 – SAII – Q14 – Ethical Issues in Auditing

Definition of the gap between public expectation and auditor conduct.

AAA – May 2024 – L3 – SB – Q4 – Forensic Auditing

Discuss auditor responsibility for fraud detection, strategies for closing the expectation gap, differences between review and audit reports, and required reporting for managing fraud.

AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability

Discuss the expectation gap, strategies to address it, and the role of professional skepticism in auditing financial statements.

AA – Nov 2019 – L2 – Q2 – Ethical Issues in Auditing

Discuss the concept of expectation gap in auditing and the reasons an auditor may not detect fraud.

AAA – Nov 2011 – L3 – SAII – Q14 – Ethical Issues in Auditing

Definition of the gap between public expectation and auditor conduct.

AAA – May 2024 – L3 – SB – Q4 – Forensic Auditing

Discuss auditor responsibility for fraud detection, strategies for closing the expectation gap, differences between review and audit reports, and required reporting for managing fraud.

AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability

Discuss the expectation gap, strategies to address it, and the role of professional skepticism in auditing financial statements.

AA – Nov 2019 – L2 – Q2 – Ethical Issues in Auditing

Discuss the concept of expectation gap in auditing and the reasons an auditor may not detect fraud.

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Question Tag: Expectation Gap

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AAA – Nov 2011 – L3 – SAII – Q14 – Ethical Issues in Auditing

Definition of the gap between public expectation and auditor conduct.

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AAA – May 2024 – L3 – SB – Q4 – Forensic Auditing

Discuss auditor responsibility for fraud detection, strategies for closing the expectation gap, differences between review and audit reports, and required reporting for managing fraud.

You're reporting an error for "AAA – May 2024 – L3 – SB – Q4 – Forensic Auditing"

AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability

Discuss the expectation gap, strategies to address it, and the role of professional skepticism in auditing financial statements.

You're reporting an error for "AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability"

AA – Nov 2019 – L2 – Q2 – Ethical Issues in Auditing

Discuss the concept of expectation gap in auditing and the reasons an auditor may not detect fraud.

You're reporting an error for "AA – Nov 2019 – L2 – Q2 – Ethical Issues in Auditing"

AAA – Nov 2011 – L3 – SAII – Q14 – Ethical Issues in Auditing

Definition of the gap between public expectation and auditor conduct.

You're reporting an error for "AAA – Nov 2011 – L3 – SAII – Q14 – Ethical Issues in Auditing"

AAA – May 2024 – L3 – SB – Q4 – Forensic Auditing

Discuss auditor responsibility for fraud detection, strategies for closing the expectation gap, differences between review and audit reports, and required reporting for managing fraud.

You're reporting an error for "AAA – May 2024 – L3 – SB – Q4 – Forensic Auditing"

AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability

Discuss the expectation gap, strategies to address it, and the role of professional skepticism in auditing financial statements.

You're reporting an error for "AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability"

AA – Nov 2019 – L2 – Q2 – Ethical Issues in Auditing

Discuss the concept of expectation gap in auditing and the reasons an auditor may not detect fraud.

You're reporting an error for "AA – Nov 2019 – L2 – Q2 – Ethical Issues in Auditing"

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