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Overview of Audit Expectation Gap (AEG)

Learn more about audit expectation gap.

Audit Expectation Gap (AEG)

  • Not a new issue but definitely a persistent one
  • More than 100 years old (Chandler & Edwards, 1996)
  • Prevalent in many countries
  • Threatens the credibility of the auditing profession
  • More evident during times of crisis,
    • e.g. after the 2008 Global Financial Crisis many proposals were put forward were on how to improve audits and address the AEG (Rhuke & Schmidt, 2014).

The definition doesn’t consider:

  • The reasonableness of societal expectations
  • The auditor’s performance

Definition of Audit Expectation Gap

Cohen Commission (1978, pg. 71): “the gap between what the public perceives the auditors ought to do and what the auditors can and reasonably be expected to accomplish.”
  • The definition considers reasonableness

However, both Liggio (1974) and the Cohen Commission (1978) fail to consider the possibility that auditors may not perform to the level that is expected of them, even if this expectation is in fact reasonable.

Porter (1993): The gap between society’s expectations of auditors and auditor’s perceived performance, it is seen to comprise ‘reasonableness’ and ‘performance’ components, the latter being subdivided into ‘deficient standards’ and ‘deficient performance’.

  • Society’s expectations of auditors (reasonable vs unreasonable expectations) AND
  • auditors perceived performance (which fails to meet reasonable expectations)

Flow chart showing AEG at the top, going down to 'Elements of the AEG' which goes down to 1. 'Reasonableness gap' (end there) and 2. 'performance gap' which does down to 1. 'Deficiency in standards' and 'Deficiency in auditors performance'

Over to you

Have you experienced AEG? How do you think we can narrow this gap?

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