TORONTO, Oct. 20, 2021 /CNW/ - The audit expectation gap - what users expect from the auditor and the financial statement audit versus the reality of what an audit is - needs to be narrowed for the benefit of the public interest, says 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 (AASB).
A holistic approach is especially needed to narrow the expectation gap related to fraud and going concern, where all stakeholders will need to play vital roles in meaningful change.
With audit quality a concern in many countries, 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 concludes 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 suggest that the International Auditing and Assurance Standards Board (IAASB) and national standard setters consider areas where the auditing standards could be enhanced to guide audit practitioners in the application of professional scepticism.
For going concern, a main recommendation is that the International Accounting Standards Board (IASB) and the IAASB should explore supplementing the current binary approach to disclosing material uncertainty on going concern with additional going concern disclosures.
Maggie McGhee, executive director of strategy and governance at ACCA, said: "Audit needs to evolve if it is to be trusted and meet demands of public interest. Fraud and going concern were top of the agenda for our roundtable participants, but also gaps around knowledge and the need for everyone in the financial reporting ecosystem to understand each other's role. It is an interconnected system on which all players rely."
Simon Grant, Group Executive, Advocacy and International, CA ANZ, added: "Our aim with this report is to support constructive change towards the narrowing of the expectation gap in audit. And that's because it has a vital part to play in strong and resilient capital markets, especially with regards to instilling trust for investors."
Bob Bosshard, Chair, Canadian Auditing and Assurance Standards Board, said: "As a standard-setter, we are an important part of the global financial reporting ecosystem. We are encouraged by the report's recommendations, including ensuring the international standards on auditing are clear, supporting consistent application by practitioners. The financial statement audit and broader financial reporting are under intense scrutiny and the recommendations are therefore particularly timely given ongoing proposals for audit reform globally."
Charles-Antoine St-Jean, president and CEO, CPA Canada, noted: "Protecting the public interest is core to our profession and performing high-quality audits builds public trust and confidence in the capital markets and the economy. Ensuring the long-term resilience of the audit profession cannot be done in isolation. It is vital that discussions occur within the full financial ecosystem to ensure that auditing practices, skills and standards evolve as required to meet the needs of an increasingly complex operating environment."
The report Closing the expectation gap in audit – the way forward on fraud and going concern: a multi stakeholder approach can be downloaded here: https://frascanada.ca/audit-gap-recommendations
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