IDEAS home Printed from https://ideas.repec.org/a/bla/acctfi/v46y2006i4p653-676.html
   My bibliography  Save this article

Assurance provided by auditors’ reports on prospective financial information: implications for the expectation gap

Author

Listed:
  • Peter Schelluch
  • Grant Gay

Abstract

The results of this study indicate significant differences in beliefs between auditors, users and preparers of prospective financial information, concerning forecast reliability and the role and responsibilities of auditors and management. Contrary to the usual published studies on expectation gap, it was found that auditors believe that forecasts are more reliable than users or preparers. Auditors also believe that they have a higher level of responsibility and accountability than is attributed to them by users or preparers. Beliefs were affected by the type of report issued by the auditor and subjects were able to discriminate between the level of assurance provided by positive and negative assurance opinions. However, based on the responses of shareholders, it appears that the negative assurance opinion on assumptions for an audit might confuse users and might not meet the demands of the market.

Suggested Citation

  • Peter Schelluch & Grant Gay, 2006. "Assurance provided by auditors’ reports on prospective financial information: implications for the expectation gap," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(4), pages 653-676, December.
    • Handle: RePEc:bla:acctfi:v:46:y:2006:i:4:p:653-676
    DOI: 10.1111/j.1467-629X.2006.00187.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-629X.2006.00187.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-629X.2006.00187.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Houghton, Keith A., 1987. "True and fair view: An empirical study of connotative meaning," Accounting, Organizations and Society, Elsevier, vol. 12(2), pages 143-152, March.
    2. Johnson, Da & Pany, K, 1984. "Forecasts, Auditor Review, And Bank Loan Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 22(2), pages 731-743.
    3. Peter M. Clarkson, 2000. "Auditor Quality and the Accuracy of Management Earnings Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 17(4), pages 595-622, December.
    4. Larelle Chapple & Peter M. Clarkson & Christopher J. Peters, 2005. "Impact of the Corporate Law Economic Reform Program Act 1999 on initial public offering prospectus earnings forecasts," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(1), pages 67-94, March.
    5. Houghton, Keith A., 1988. "The measurement of meaning in accounting: A critical analysis of the principal evidence," Accounting, Organizations and Society, Elsevier, vol. 13(3), pages 263-280, April.
    6. Lee Cronbach & W. Warrington, 1951. "Time-limit tests: Estimating their reliability and degree of speeding," Psychometrika, Springer;The Psychometric Society, vol. 16(2), pages 167-188, June.
    7. Haried, Aa, 1973. "Measurement Of Meaning In Financial Reports," Journal of Accounting Research, Wiley Blackwell, vol. 11(1), pages 117-145.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. David Carassus & Khaled Albouaini & Marie Caussimont, 2013. "Une analyse de l'Audit Expectation Gap dans le contexte français," Post-Print hal-02432110, HAL.
    2. Hashem Valipour & Javad Moradi & Hajar Moazaminezhad, 2012. "Auditors’ Perceptions of Reasonable Assurance the Effectiveness of the Audit Risk Model. Case from Iran," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(3), pages 17-34, July.
    3. Andrea Caputo & Alberto Tron, 2016. "The attestation of corporate turnaround plans in Italy: operating problems and possible solutions," International Journal of Critical Accounting, Inderscience Enterprises Ltd, vol. 8(1), pages 30-44.
    4. Klaus Ruhnke & Catharina Schmiele & Jochen Schwind, 2010. "Die Erwartungslücke als permanentes Phänomen der Abschlussprüfung — Definitionsansatz, empirische Untersuchung und Schlussfolgerungen," Schmalenbach Journal of Business Research, Springer, vol. 62(4), pages 394-421, June.
    5. Taslima Akther & Xu Fengju & Md Ziaul Haque, 2019. "An Investigation ofAudit Expectation Gap in Bangladesh," Journal of Business, LAR Center Press, vol. 4(2), pages 1-11, February.
    6. Masoud, Najeb, 2017. "An empirical study of audit expectation-performance gap: The case of Libya," Research in International Business and Finance, Elsevier, vol. 41(C), pages 1-15.
    7. Cuadrado-Ballesteros, Beatriz & Martínez-Ferrero, Jennifer & García-Sánchez, Isabel María, 2017. "Mitigating information asymmetry through sustainability assurance: The role of accountants and levels of assurance," International Business Review, Elsevier, vol. 26(6), pages 1141-1156.
    8. Kristy Hodge & Nava Subramaniam & Jenny Stewart, 2009. "Assurance of Sustainability Reports: Impact on Report Users' Confidence and Perceptions of Information Credibility," Australian Accounting Review, CPA Australia, vol. 19(3), pages 178-194, September.
    9. David Hay & Noel Harding & Pallab Biswas & Chris Gan & Irene Qingling Ge & Linh Ho & Dinithi Ranasinghe & Harj Singh & Nigar Sultana & Shan Zhou, 2024. "Comments on Exposure Draft for Proposed ISSA 5000, sustainability assurance engagements by the Auditing and Assurance Standards Committee of AFAANZ," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 1221-1239, March.
    10. Tomasz Iwanowicz & Bartłomiej Iwanowicz, 2019. "ISA 701 and Materiality Disclosure as Methods to Minimize the Audit Expectation Gap," JRFM, MDPI, vol. 12(4), pages 1-20, October.
    11. Archel, Pablo & Carrasco, Francisco & García-Benau, María Antonia & Larrinaga, Carlos, 2022. "Intellectual engagements of accounting academics: The ‘forecasted losses' intervention," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 86(C).
    12. Xin Chang & André F. Gygax & Elaine Oon & Hong Feng Zhang, 2008. "Audit quality, auditor compensation and initial public offering underpricing," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(3), pages 391-416, September.
    13. Quick, Reiner & Gauch, Kevin, 2021. "Is assurance on risk management systems relevant for bankers’ decisions?," Advances in accounting, Elsevier, vol. 55(C).
    14. Pranil Prasad & Parmod Chand, 2017. "The Changing Face of the Auditor's Report: Implications for Suppliers and Users of Financial Statements," Australian Accounting Review, CPA Australia, vol. 27(4), pages 348-367, December.
    15. Fengju Xu & Taslima Akther, 2019. "A Partial Least-Squares Structural Equation Modeling Approach to Investigate the Audit Expectation Gap and Its Impact on Investor Confidence: Perspectives from a Developing Country," Sustainability, MDPI, vol. 11(20), pages 1-21, October.
    16. Heliodoro, Paula Alexandra & Carreira, Francisco Alegria & Lopes, Manuel Mouta, 2016. "The change of auditor: The Portuguese case," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 19(2), pages 181-186.
    17. Li Chen & David Hay & Jingyuan Zhuang, 2020. "Initial public offering prospectus forecast errors and mandatory explanations: evidence from New Zealand," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2167-2202, September.
    18. Taslima Akther & Fengju Xu, 2020. "Existence of the Audit Expectation Gap and Its Impact on Stakeholders’ Confidence: The Moderating Role of the Financial Reporting Council," IJFS, MDPI, vol. 8(1), pages 1-25, January.
    19. Josh Wei-Jun Hsueh, 2018. "Governance Structure and the Credibility Gap: Experimental Evidence on Family Businesses’ Sustainability Reporting," Journal of Business Ethics, Springer, vol. 153(2), pages 547-568, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hellmann, Andreas & Patel, Chris & Tsunogaya, Noriyuki, 2021. "Foreign-language effect and professionals’ judgments on fair value measurement: Evidence from Germany and the United Kingdom," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    2. Tian, Yan & Zhou, Hui, 2015. "From bottom line to consumers’ mind: The framing effects of accounting information," Accounting, Organizations and Society, Elsevier, vol. 43(C), pages 56-66.
    3. Li Chen & David Hay & Jingyuan Zhuang, 2020. "Initial public offering prospectus forecast errors and mandatory explanations: evidence from New Zealand," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2167-2202, September.
    4. Barbara Weißenberger & Gero Holthoff, 2013. "Cognitive style and connotative meaning in management accounting communication," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 24(1), pages 1-25, May.
    5. Tony Mortensen & Richard Fisher, 2011. "The meaning of cash in the context of alternative accounting standards," Accounting Research Journal, Emerald Group Publishing Limited, vol. 24(1), pages 23-49, July.
    6. Hamilton, Gavin & Ó hÓgartaigh, Ciarán, 2009. "The Third Policeman: ‘The true and fair view’, language and the habitus of accounting," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 20(8), pages 910-920.
    7. Sami El Omari & Mohamed Taieb Hamadi & Wafa Khlif, 2016. "La diversité des sources d'interprétation et d'application des normes comptables internationales ; un frein à la convergence de la pratique," Post-Print hal-01900554, HAL.
    8. Jean Bédard & Daniel Coulombe & Lucie Courteau, 2016. "The Credibility of Earnings Forecasts in IPO Prospectuses and Underpricing," Accounting Perspectives, John Wiley & Sons, vol. 15(4), pages 235-267, December.
    9. Zhao, Yue & Li, Lixin, 2024. "Confucian culture and analysts' earnings forecast accuracy," Finance Research Letters, Elsevier, vol. 65(C).
    10. Anne Marie Garvey & Laura Parte & Bridget McNally & José Antonio Gonzalo-Angulo, 2021. "True and Fair Override: Accounting Expert Opinions, Explanations from Behavioural Theories, and Discussions for Sustainability Accounting," Sustainability, MDPI, vol. 13(4), pages 1-23, February.
    11. Jean Bédard & Daniel Coulombe & Lucie Courteau, 2008. "Audit Committee, Underpricing of IPOs, and Accuracy of Management Earnings Forecasts," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(6), pages 519-535, November.
    12. Beattie, Vivien, 2014. "Accounting narratives and the narrative turn in accounting research: Issues, theory, methodology, methods and a research framework," The British Accounting Review, Elsevier, vol. 46(2), pages 111-134.
    13. Dunk, Alan S. & Kilgore, Alan, 2000. "The Reintroduction of the True and Fair Override and Harmonization with IASC Standards in Australia: Lessons from the EU and Implications for Financial Reporting and International Trade," The International Journal of Accounting, Elsevier, vol. 35(2), pages 213-226, July.
    14. Lisa Evans, 2003. "The true and fair view and the ‘fair presentation’ override of IAS 1," Accounting and Business Research, Taylor & Francis Journals, vol. 33(4), pages 311-325.
    15. Stanczyk-Hugiet E. & Kozyra C. & Piorkowska K. & Stanczyk S., 2020. "Organisational Routines and Interfirm Collaboration: Measurement Dilemmas and Recommendations for Further Research Steps," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 1086-1117.
    16. Wolfgang Drobetz & Dimitrios Gounopoulos & Anna Merika & Andreas Merikas, 2017. "Determinants of Management Earnings Forecasts: The Case of Global Shipping IPOs," European Financial Management, European Financial Management Association, vol. 23(5), pages 975-1015, October.
    17. Xiao, Xinning & Shailer, Greg, 2022. "Stakeholders’ perceptions of factors affecting the credibility of sustainability reports," The British Accounting Review, Elsevier, vol. 54(1).
    18. Philip R. Beaulieu, 1994. "Utilisation par les prêteurs commerciaux de l'information comptable en interaction avec la crédibilité de la source," Contemporary Accounting Research, John Wiley & Sons, vol. 10(2), pages 587-623, March.
    19. Neil Hartnett, 2010. "The value relevance of earnings forecast disclosures: an investigation of forecast attributes and signalling in the Australian IPO context," Applied Financial Economics, Taylor & Francis Journals, vol. 20(23), pages 1819-1828.
    20. Philip R. Beaulieu, 1994. "Commercial Lenders' Use of Accounting Information in Interaction with Source Credibility," Contemporary Accounting Research, John Wiley & Sons, vol. 10(2), pages 557-585, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:acctfi:v:46:y:2006:i:4:p:653-676. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaanzea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.