Do you need this or any other assignment done for you from scratch?
We have qualified writers to help you.
We assure you a quality paper that is 100% free from plagiarism and AI.
You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)
NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.
NB: All your data is kept safe from the public.
Introduction
The expectations gap is the difference between the general public’s perception of an auditor’s role and responsibilities and his or her actual role and responsibilities. This gap negatively affects such critical aspects of auditing as credibility, reliability, and accountability (Kangarluie and Aalizadeh, 2017). In particular, the misunderstandings created by the expectations gap are dangerous in cases of fraud, where they can create unreasonable expectations of auditors or lawsuits against them (Al-Dhubaibi, 2020). Therefore, identifying means of reducing the expectations gap can significantly improve the quality of auditing.
Corporate governance is the umbrella term for the policies and practices followed by a company’s board of directors. This subject has received significant attention in the wake of recent corporate scandals and large-scale failures (Gerged and Agwili, 2020). Corporate governance is considered to be generally beneficial to companies as it has been linked with financial performance, as well as ethical behavior, which in turn improves a company’s sustainability (Gerger and Agwili, 2020). Although some mechanisms of corporate governance are linked with improvement in various areas of a company’s performance, there is no universally accepted set of best practices that will be applicable and effective for every company (Gerger and Agwili, 2020). However, the characteristics of transparency, responsibility, and social responsibility, as well as principles of equal treatment of shareholders, disclosure, and transparency are valued in the area (Alsalim, Amin, and Youssef, 2018). Corporate governance, therefore, seeks to improve companies’ performance and sustainability by promoting these characteristics and principles.
As this is such a broad area with such a profound effect on a company, some of these mechanisms can also affect the expectations gap in auditing. Previous studies have established that a strong positive correlation exists between the characteristics and principles of corporate governance and the quality of accounting data (Alsalim, Amin, and Youssef, 2018). Therefore, it appears feasible that there is a correlation between certain mechanisms of corporate governance and the expectations gap. Identifying these mechanisms can help guide policy-makers in reducing the gap.
Independent variables
Four mechanisms of corporate governance are identified as potentially influencing the expectations gap in auditing: audit committee, internal audit, external audit, and board of directors. The former committee is a subgroup of an organization’s board of directors, which is responsible for the correspondence between the board of directors, internal and external auditors, and executives (Suryanto, Thalassinos, and Thalassinos, 2017). In Saudi Arabia, the audit committee’s powers and responsibilities also include analyzing the company’s financial statements, advising the board on accounting policies, and monitoring the company’s internal and external auditors (Corporate Governance Regulations, n. d.). This group has significant responsibility for determining the company’s policies and practices related to audit, as well as a critical influence on its internal and external auditors. Furthermore, as the in-between for the company’s board of directors and internal and external auditors, the audit committee is a significant factor in the quality of these entities’ work. These powers can be utilized to create policies and inform stakeholders, including the board of directors, of auditors’ roles and responsibilities, reducing the expectations gap.
An internal auditor is a member or department within a company who is responsible for monitoring its compliance with local laws and regulations. This specialist is responsible for preparing reports on the company’s audit activities, compliance with regulations, and policies aimed at improving this compliance, to the audit committee (Corporate Governance Regulations). Furthermore, the internal auditor provides recommendations for improvement in this area, as well as monitors the company’s compliance with these recommendations (Corporate Governance Regulations). Therefore, the internal auditor has a profound impact on informing, creating, and enforcing corporate governance policies, and is a critical factor in a company’s ability to cope with risk (Koutoupis, Pazarskis, and Drogalas, 2018). The internal auditor’s responsibility to recommend policy changes can help the audit committee better inform stakeholders.
An external auditor is an independent specialist who analyzes and audits the company’s financial statements. While an internal auditor’s objective is preventing law or regulation violations, an external auditor works to detect them and is obligated to report them to the controlling authority (Corporate Governance Regulations). As the external auditor is independent of the company he or she audits, the possibility of collusion is reduced, meaning the external auditor plays a critical role in the prevention and detection of fraud or corruption (Saeed, Hamawandy, and Omar, 2020; Na, Kang, and Kim, 2018). Moreover, an external auditor ensures the objectivity and fairness of a company’s financial statements. This specialist’s role in corporate governance is to improve accountability, especially where shareholders and regulating bodies are concerned.
The board of directors is a company’s primary governing body. These elected individuals are responsible to the shareholders for the company’s value (Corporate Governance Regulations). To this end, the board sets out the company’s general strategies and policies and ensures that the company has access to the required financial and human resources (Corporate Governance Regulations). Thus, the board of directors is responsible for coordinating, implementing, and overseeing other mechanisms of corporate governance. As such, it has a critical impact on the company’s performance and sustainability (Naciti, 2019). As the board of directors is directly or, through assigning executives, responsible for the final drafting and implementation of corporate policies, it strongly influences the quality of internal and external auditors’ work. Furthermore, as a company’s policies can affect the audit expectations gap, and the board of directors is responsible for the policies, but at the same time can be negatively affected by the gap, a feedback loop can exist between these two factors.
Independent variable
The expectations gap in audit, as mentioned above, has been potentially responsible for several high-profile accounting and fraud scandals and failures. It arises from the difference in what the financial statement’s user expects from the auditor, and what the auditor’s responsibilities are. The consequences of this difference can be dangerous to both the auditor and the user. Previous research has established the expectations gap as an issue present in most countries and identified audit education as the most valuable tool in reducing it (Al-Dhubaibi, 2020). However, internal regulation and policies through corporate governance can serve to shorten the gap, as well.
The proposed study seeks to evaluate whether implementing such policies, particularly in regards to the audit committee and board of directors can similarly lead to the users of financial statements within these bodies being better informed of the auditors’ responsibilities. From the internal and external auditors, the regularity, fairness, and accuracy of financial statements can further improve the users’ awareness of their roles and responsibilities. Therefore, the implementation of internal and external policies related to audits and the interaction between the four outlined mechanisms of corporate governance are expected to be negatively correlated with the audit expectations gap within a company.
References
Al-Dhubaibi, A. A. S. (2020) ‘Auditors’ responsibility for fraud detection: Views of auditors, preparers, and users of financial statements in Saudi Arabia,’Accounting, 6(3), pp. 279-290. Web.
Alsalim, M., Amin, H. and Youssef, A. (2018) ‘The role of corporate governance in achieving accounting information quality (field study in the Mishraq Sulfur State Co.),’ Studies and Scientific Researches. Economics Edition, 27.
Corporate Governance Regulations (Saudi Arabia) (2021). Web.
Gerged, A. M. and Agwili, A. (2020) ‘How corporate governance affect firm value and profitability Evidence from Saudi financial and non-financial listed firms,’International Journal of Business Governance and Ethics, 14(2), pp. 144-165. Web.
Jabbarzadeh Kangarluie, S. and Aalizadeh, A. (2017) ‘The expectation gap in auditing,’Accounting, 3(1), pp. 19-22. Web.
Koutoupis, A., Pazarskis, M., & Drogalas, G. (2018) ‘Auditing corporate governance statements in Greece — the role of internal auditors,’Corporate Governance: The International Journal of Business in Society, 18(5), pp 1007-1020. Web.
Kovermann, J., and Velte, P. (2019) ‘the impact of corporate governance on corporate tax avoidance — a literature review,’ Journal of International Accounting, Auditing and Taxation, 100270. Web.
Na, K., Kang, Y.-H., & Kim, Y. (2018) ‘The effect of corporate governance on the corruption of firms in BRICs (Brazil, Russia, India & China),’Social Sciences, 7(6), p. 85. Web.
Naciti, V. (2019) ‘Corporate governance and board of directors: the effect of a board composition on firm sustainability performance,’ Journal of Cleaner Production, 237, p. 117727. Web.
Saeed, S., Hamawandy, N.M. and Omar, R. (2020) ‘Role of internal and external audit in public sector governance. A case study of Kurdistan regional government,’ International Journal of Advanced Science and Technology, 29(8), pp.1452-1462.
Suryanto, T., Thalassinos, J. E., and Thalassinos, E. I. (2017) ‘Board characteristics, audit committee and audit quality: The case of Indonesia,’ International Journal of Economics and Business Administration, V(3), pp. 44-57.
Do you need this or any other assignment done for you from scratch?
We have qualified writers to help you.
We assure you a quality paper that is 100% free from plagiarism and AI.
You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)
NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.
NB: All your data is kept safe from the public.