Narrowing the Audit Expectation Gap is Essential for a Resilient Global Financial Reporting Ecosystem

TORONTO, Oct. 20, 2021 /CNW/ - The audit expectation gap - what users expect from the auditor and the financial statement audit versus the reality of what an audit is - needs to be narrowed for the benefit of the public interest, says a new report issued by the Association of Chartered Certified Accountants (ACCA), Chartered Accountants Australia and New Zealand (CA ANZ), Chartered Professional Accountants of Canada (CPA Canada) and the Canadian Auditing and Assurance Standards Board (AASB).

A holistic approach is especially needed to narrow the expectation gap related to fraud and going concern, where all stakeholders will need to play vital roles in meaningful change.

With audit quality a concern in many countries, the report - Closing the expectation gap in audit – the way forward on fraud and going concern: A multi-stakeholder approach - offers recommendations based on research with key players of the financial reporting ecosystem. These include financial statement preparers, auditors, regulators, boards and audit committees, and investors.

The research found that factors contributing to the expectation disparity include gaps in knowledge, performance and the evolution of audit.

To tackle fraud, a main recommendation is to encourage the involvement of forensic specialists in risk assessment where a high risk is identified, but auditors should still apply their professional judgement when determining how to respond to identified fraud risks. Participants noted that mandating the involvement of forensic specialists may widen the expectation gap, as this could lead to a 'box-ticking' approach.

The report concludes that it is not necessary to have a 'suspicious mindset' for enhanced fraud identification when planning and performing the audit; instead, ACCA, CA ANZ, AASB and CPA Canada suggest that the International Auditing and Assurance Standards Board (IAASB) and national standard setters consider areas where the auditing standards could be enhanced to guide audit practitioners in the application of professional scepticism.

For going concern, a main recommendation is that the International Accounting Standards Board (IASB) and the IAASB should explore supplementing the current binary approach to disclosing material uncertainty on going concern with additional going concern disclosures.

Maggie McGhee, executive director of strategy and governance at ACCA, said: "Audit needs to evolve if it is to be trusted and meet demands of public interest. Fraud and going concern were top of the agenda for our roundtable participants, but also gaps around knowledge and the need for everyone in the financial reporting ecosystem to understand each other's role. It is an interconnected system on which all players rely."

Simon Grant, Group Executive, Advocacy and International, CA ANZ, added: "Our aim with this report is to support constructive change towards the narrowing of the expectation gap in audit. And that's because it has a vital part to play in strong and resilient capital markets, especially with regards to instilling trust for investors."

Bob Bosshard, Chair, Canadian Auditing and Assurance Standards Board, said: "As a standard-setter, we are an important part of the global financial reporting ecosystem. We are encouraged by the report's recommendations, including ensuring the international standards on auditing are clear, supporting consistent application by practitioners. The financial statement audit and broader financial reporting are under intense scrutiny and the recommendations are therefore particularly timely given ongoing proposals for audit reform globally."

Charles-Antoine St-Jean, president and CEO, CPA Canada, noted: "Protecting the public interest is core to our profession and performing high-quality audits builds public trust and confidence in the capital markets and the economy. Ensuring the long-term resilience of the audit profession cannot be done in isolation. It is vital that discussions occur within the full financial ecosystem to ensure that auditing practices, skills and standards evolve as required to meet the needs of an increasingly complex operating environment."

The report Closing the expectation gap in audit – the way forward on fraud and going concern: a multi stakeholder approach can be downloaded here: https://frascanada.ca/audit-gap-recommendations

About ACCA
We're a thriving global community of 233,000 members and 536,000 future members based in 178 countries and regions, who work across a wide range of sectors and industries. We uphold the highest professional and ethical values.

We offer everyone everywhere the opportunity to experience a rewarding career in accountancy, finance and management. Our qualifications and learning opportunities develop strategic business leaders, forward-thinking professionals with the financial, business and digital expertise essential for the creation of sustainable organisations and flourishing societies.

Since 1904, being a force for public good has been embedded in our purpose. We believe that accountancy is a cornerstone profession of society and is vital in helping economies, organisations and individuals to grow and prosper. It does this by creating robust trusted financial and business management, combating corruption, ensuring organisations are managed ethically, driving sustainability, and providing rewarding career opportunities.

And through our cutting-edge research, we lead the profession by answering today's questions and preparing for the future. We're a not-for-profit organisation.
Find out more at: www.accaglobal.com 

About CA ANZ: Chartered Accountants Australia and New Zealand (CA ANZ) represents more than 128,000 financial professionals, supporting them to build value and make a difference to the businesses, organisations and communities in which they work and live. Around the world, Chartered Accountants are known for their integrity, financial skills, adaptability and the rigour of their professional education and training.

CA ANZ promotes the Chartered Accountant (CA) designation and high ethical standards, delivers world-class services and life-long education to members and advocates for the public good. We protect the reputation of the designation by ensuring members continue to comply with a code of ethics, backed by a robust discipline process. We also monitor Chartered Accountants who offer services directly to the public.

Our flagship CA Program, the pathway to becoming a Chartered Accountant, combines rigorous education with practical experience. Ongoing professional development helps members shape business decisions and remain relevant in a changing world.

We actively engage with governments, regulators and standard-setters on behalf of members and the profession to advocate in the public interest. Our thought leadership promotes prosperity in Australia and New Zealand.

Our support of the profession extends to affiliations with international accounting organisations.

We are a member of the International Federation of Accountants and are connected globally through Chartered Accountants Worldwide and the Global Accounting Alliance. Chartered Accountants Worldwide brings together members of 13 chartered accounting institutes to create a community of more than 1.8 million Chartered Accountants and students in more than 190 countries. CA ANZ is a founding member of the Global Accounting Alliance which is made up of 10 leading accounting bodies that together promote quality services, share information and collaborate on important international issues. More information is here: www.charteredaccountantsanz.com 

ACCA and CA ANZ created a strategic alliance in June 2016, forming one of the largest accounting alliances in the world. It represents 870,000 current and next generation accounting professionals across 179 countries and provides a full range of accounting qualifications to students and business. Together, ACCA and CA ANZ represent the voice of members and students, sharing a commitment to uphold the highest ethical, professional and technical standards

About the AASB
The Auditing and Assurance Standards Board (AASB) is responsible for setting Canadian Auditing Standards (CASs) for financial statement audits, and other assurance and related services standards. Final standards are issued in the CPA Canada Handbook – Assurance.

About CPA Canada
Chartered Professional Accountants of Canada (CPA Canada) works collaboratively with the provincial, territorial and Bermudian CPA bodies, as it represents the Canadian accounting profession, both nationally and internationally. This collaboration allows the Canadian profession to champion best practices that benefit business and society, as well as prepare its members for an ever-evolving operating environment featuring unprecedented change. Representing more than 220,000 members, CPA Canada is one of the largest national accounting bodies worldwide. cpacanada.ca

SOURCE CPA Canada

or media inquiries, please contact: Helen Thompson, Head of Corporate Comms, ACCA, M: [phone], [email protected]; Priya Kumar, Australian Public Affairs & Media Relations Manager, CA ANZ, Tel: [phone], M.: [phone], [email protected]; Caylyn Rodrigues, Communications Manager, Standards, Financial Reporting & Assurance Standards Canada, Tel: [phone], [email protected]; Perry Jensen, Media Relations Manager, Chartered Professional Accountants of Canada, Tel: [phone], Cell: 647-922-7339, [email protected]

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