Given the nature of accounting, whether internal or external in focus, the issue

Question

Given the nature of accounting, whether internal or external in focus, the issue of ethics is never far away. Accountants are called on to provide information that often involves using judgment - judgment that is expected to be morally sound and professionally ethical. Comment on the "expectations gap" that sometimes exists in the mind of the public versus the mind of the accountant. Is mastery of standards, proficiency of GAAP not sufficient? Is there a public consensus of what constitutes ethical behavior anyway?

Explanation / Answer

Generally expectation gaps may arise in the following key areas:

The auditing expectation gap refers to the difference between what the public and

other financial statement users perceive auditors’ responsibilities to be and what

auditors believe their responsibilities entail.

SAS 54 – requires the auditor to plan the audit to give reasonable assurance that illegal

acts with direct and material effects on the financial statements will be detected. The

auditor is not required to plan the audit to provide reasonable assurance that illegal

acts with a material but indirect effect on the financial statements will be detected. It

has language that limits the auditor’s responsibility e.g. ‘…an audit made in

accordance with generally accepted auditing standards provides no assurance that

illegal acts will be detected or that any contingent liabilities that may result will be

disclosed’.

SAS 58 – has explicit reference that communicates to readers that an audit provides

reasonable assurance of financial statements’ material accuracy.

The study found that expectation gaps exist and investors have higher expectations for

various facets and/pr assurances of the audit than do auditors. The investing public

does not want auditors to issue an unqualified opinion unless:

* relevant to expectation gaps in internal controls

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