Definition of Expectation gap

Definition: The term Expectation gap refers to the fact that the public perception of the role and responsibilities of the external auditor is different from his statutory role and responsibilities. The expectations of the public are often set at a level higher than that at which the external auditor actually operates.

Some examples of the misunderstandings inherent in the public’s expectations are as follows:

• The public believes that the audit opinion in the audit report amounts to a ‘certificate’ that the financial statements are correct and can be relied upon for all decision-making purposes.  
• The public also believes that the auditor has a duty to prevent and detect fraud and that this is one reason for an audit.  
• The public assumes that, in carrying out his audit work, the auditor tests 100% of the transactions undertaken during the accounting period.

The user of financial statements should not take auditor report as certificate and should consider the fact that auditor provide reasonable assurance not absolute assurance. It means that there may be some areas in which misstatement may be there and could not be identified. We can do some efforts by developing understanding of the users to minimize this expectation gap to a great extent which are as follow:

• User of financial statements must understand that it is not the responsibility of auditor to detect fraud as public thinks that audit is only for the purpose to detect fraud.
• Audit work is based on sampling which means that auditor does not verify all the transaction so absolute assurance cannot be given.
• General purpose financial statements are prepared for general use of the users so special nature of decision making should not be made.
• Audit report should mention the nature of work auditor carried out and that their opinion is based on the information provided to them and to the best of their knowledge and belief.

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