• Register
Return to: Home > News > Standards > EC AUDIT REFORM: Expectation gap unlikely to close

EC AUDIT REFORM: Expectation gap unlikely to close

Improving auditor involvement with the front end of the annual report, providing greater assurance outside the report and boosting communication between auditors, regulators and a company would improve audit quality, according to the European audit profession.

The majority of 700 respondents to the EC's green paper on audit reform believe the expectation gap between what the public expects an auditor to do - report on a company's financial health - and the auditor's actual role is unlikely to be closed.

There is also general agreement that more information could be provided on the audit process.

The Big Four said that although some measures may be helpful in strengthening the role of the audit, an auditor’s mandate is to issue an opinion as to whether the financial statements give a true and fair view in accordance with the relevant reporting framework.

“We support the International Auditing and Assurance Standards Board project that is already under way to consider how the audit report may need to evolve, including the possibility of more information about the audit methodology employed,” Ernst & Young said in its response.

Regular dialogue

Echoing suggestions from the professional bodies, the firm said that enhanced communication can improve overall quality.

“Audit quality requires an effective process of regular dialogue and challenge among the auditor, management and the audit committee. Much of this process remains private and unreported, which causes some stakeholders concern," the statement continued.

In a summary paper, the majority of professional bodies said that reporting on financial health is not the purpose of an audit. Also, the time gap between the year end and the date of the audit can’t be shortened without damaging audit quality.

Investor representatives said they would like to see audit firms ensure a greater and more visible “tone from the top” as well as consistency of key judgements across clients, according to the report. 

Academics suggest expanding the content of the auditor’s report “is critical not only to reduce the expectations gap but to also provide greater incentives for high quality audits”.

This month, the International Accounting Bulletin will publish a round table discussion on the EC Audit Green Paper proposals. This discussion includes the views of public policy leaders from the PwC, E&Y, mid-tier firms, the ACCA and De Montfort University.

Top Content

    Nigeria: building compliance and engagement

    Opportunities created by regulatory and legislative changes in Nigeria are tempered by the fragile state of the economy, although practitioners are generally confident that conditions will improve over the next few years if appropriate steps are taken. Paul Golden reports.

    read more

    Ghana: a quest for consistency

    Ghana’s current economic profile would suggest a fertile landscape for purveyors of accounting services. But inconsistent approaches to compliance and application of standards – coupled with problems in the banking sector and consequent liquidity constraints – have created a challenging environment. Paul Golden writes.

    read more

    Drone technology: audit takes to the skies

    The movement towards a digitised era has already impacted the auditing profession in a number of ways, from blockchain to artificial intelligence. Now firms are taking to sky and using drone technology in their audits. Mishelle Thurai speaks to Big Four firms to find out more.

    read more

    SBC: a new alliance joins the market

    Jonathan Minter speaks to Paul Tutin, chair of founding firm Streets Chartered Accountants, about why the business and its European partners took the decision to launch their own association.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.