The Audit Expectation Gap in Singapore

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THE AUDIT EXPECTATION GAP IN SINGAPORE –

EVIDENCE IN SUPPORT OF THE LONG-FORM AUDIT

REPORT

Peter J Best

Sherrena B!"#$

S!h%%& %' A!!%ntan!$

(UT

C&ar)!e Tan *PMG-

Peat Mar+)!" S)n,a%re

.OR*ING PAPER NO/ 0111-203



The A4)t E5e!tat)%n Ga )n S)n,a%re – E6)4en!e )n S%rt %' the L%n,-'%r7 A4)t Re%rt

Peter J Best

Associate Professor

School of Accountancy

Queensland University of Technology

Brisbane Australia

Email: p.best!ut.edu.au

Sherrrena B!"#$

"ecturer

School of Accountancy

Queensland University of Technology

Brisbane Australia

C&ar)!e Tan

Auditor

#P$%& Peat $ar'ic(

)hartered Accountants

Singapore

Th)s aer )s n%t t% #e 8%te4 +)th%t the ath%rs9 er7)ss)%n/

*

mailto:[email protected]

mailto:[email protected]



A#stra!t

This paper reports the results of a study of the audit e+pectation gap in Singapore, conducted in -/. The motivation for this

study 'as Singapore0s status as one of the 1dragon countries2 in Asia 'ith a large international financial mar(et in 'hich

foreign and local investors depend on audited financial reports for investment decisions. )urrently, in Singapore short&form

audit reports are to be attached to financial reports, unli(e the long&form reports re!uired by ma3or countries li(e the United

States, Australia and United #ingdom.

The research method adopted in this paper is a replication of an Australian study documented in Schelluch 4-/5. That

study found evidence of a reduction in the audit e+pectation gap through the use of the long&form audit report introduced in

Australia in -6. 7t 'as hypothesised that the e+pectation gap 'ould have been considerable in Singapore relative to the

results found by Schelluch 4-/5. The results provide evidence of the e+istence of a moderate audit e+pectation gap in

Singapore but not to the e+tent envisaged given the current usage of a short&form audit report. The introduction of a long&

form audit report in Singapore could be beneficial in improving users0 understanding of the nature, purpose and limitations of

audit reports.

INTRODUCTION

The research literature e+amining the nature and e+tent of the audit e+pectation gap has been considerable over the past

t'enty years 8see Bec( 4-95; Arrington, <illison and =ilson 4->5;AS)PA 4-65?. @esearch has been conducted on the

impact of modifications to the 'ording in audit reports as a means of reducing this gap. The adoption of long&form audit

reports has proven to be effective in reducing the differences bet'een auditors0 and users0 perceptions of the audit function in

a number of areas 8see #elly and $ohr'eis 4->5; <atherly, 7nnes and Bro'n 4--5; %ay and Schelluch 4-5; Schelluch

4-/5?.

arious definitions have been proposed for the audit e+pectation gap. Porter 4->>5 identified t'o components of the audit

e+pectation gap:

a5 the difference bet'een 'hat society e+pects auditors to achieve and 'hat they can reasonably e+pect to

accomplish 4designated the reasonableness gap05; and

b5 the difference bet'een the responsibilities society reasonably e+pects of auditors and auditors0

performance 4designated the performance gap05.

This paper does not address issues associated 'ith the performance gap. Society0s reasonable e+pectations of auditors have

become embodied in auditing standards and legislation, and have also developed further through decisions of the courts 4e.g.

negligence actions5 and the conduct of peer revie's 4mandatory or voluntary5. The main focus of this study is differences

bet'een the e+pectations of users of audited financial reports and auditors0 perceptions of their role 4that is, primarily the

reasonableness gap5.

This paper reports the results of a study of the audit e+pectation gap in Singapore, conducted in -/. The motivation for this

study 'as Singapore0s status as one of the 1dragon countries2 in Asia 'ith a large international financial mar(et in 'hich

-



REFERENCES

-. American 7nstitute of )ertified Public Accountants 4A7)PA5 )ommission on Auditors0 @esponsibilities 4-9>5,

Report, Conclusions and Recommendations, A7)PA, Ce' Dor(.

*. Australian Society of )ertified Practising Accountants 4AS)PA5 and The 7nstitute of )hartered

Accountants in Australia 47)AA5 4-65, A Research Study on Financial Reporting and Auditing - Bridging

the Expectation Gap, $elbourne.

. Arrington ).E., <illison =.A. and =ilson P.. 4->5, 1The Psychology of E+pectation %aps: =hy 7s There So

$uch Fispute about Auditor @esponsibilityG2 Accounting and Business Research , Autumn, pp. *6&*HI.

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Perceived $essage2, Journal of Accounting Research, Autumn, pp. HH&9I.

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/. %ay %.E. and Schelluch P 4-5, 1The 7mpact of the "ong orm Audit @eport on Users0 Perceptions of the

Auditor0s @ole2, Australian Accountant Reie! , ol. , Co.*, pp. -&--.

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7nstitute of )hartered Accountants in England and =ales, "ondon.

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--. #elly A.S. and $ohr'eis ".). 4->5, 1Ban(ers0 and 7nvestors0 Perceptions of the Auditor0s @ole in

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Journal of 'ar(eting Research, ol. O777, pp. 6H/&6/6.

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and Finance, $ay, pp. /-&9>.

-9. $onroe %.S. and =oodcliff F 4-6a5, 1%reat E+pectations: Public Perceptions of the Auditor0s @ole2,

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->. $onroe %.S. and =oodcliff F 4-6b5, 1An Empirical 7nvestigation of the Audit E+pectation %ap:

Australian Evidence2, Accounting and Finance, $ay, pp. 69&96.

-. Cair @.F. and @ittenberg ".E.4->95, 1$essages Perceived from Audit, @evie', and )ompilation @eports:

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>.

*I. Porter B.A. 4->>5, 1The Audit E+pectation %ap2, $assey University Ce' ealand Fiscussion Paper Co.9*.

*-. Porter B.A. 4-I5, 1The Audit E+pectation&Performance %ap & An Empirical 7nvestigation2, AAA)*

Conference, Perth, July.



**. Schelluch P. 4-/5, 1"ongform Audit @eport $essages: urther 7mplications for the Audit E+pectation

%ap2, Accounting @esearch Journal, ol. , Co. -, pp. 6>&HH.

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The Audit Expectation Gap in Singapore