Scenario One: 

You are an auditor in an accounting firm and you asked your supervisor about the ‘audit expectation gap’. Your superior provided his opinion on the issue as follows:

There is a so called ‘audit expectation gap’, and it is associated with unreasonable expectations of users. They want all fraud found, and a guarantee that the company will continue forever! This is quite unreasonable and not what the audit is designed to do! Perhaps we could do more on these issues, but it would be more work, cost more, and I doubt whether the companies would be prepared to pay anyway.

Required

Discuss whether you agree with your supervisor’s views of the audit expectation gap

Scenario Two:

Robert, a young CPA and one of the audit team members for ABC Pty Ltd, has developed very good insights into the company’s systems in the last 12 months and was asked by his boss, John, to draft a report on the reliability of internal control at ABC for review. The report is to be used as a part of a due diligence assurance engagement for ABC’s prospectus. ABC wants to be listed on Australian Securities Exchange by coming June.

In carrying out the review, Robert finds a number of matters that concern him. He notices that the controls over inventory requisitions are very poor, leading to numerous complaints from customers about delays and wrong deliveries, and cancellations.

 Moreover, the inventory records do not show the history or the values of the inventory, so that estimates were used to arrive at the year-end inventory. He also noticed the poor standard of appliances, with manufacturers’ warranties long expired.

Robert completes his report, with details of the poor internal controls for his partner’s review. However, John replaces his report with a very brief summary, and a conclusion that the internal control systems are sound and