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ISA 701 and Materiality Disclosure as Methods to Minimize the Audit Expectation Gap

Author

Listed:
  • Tomasz Iwanowicz

    (Department of Accounting, Akademia Leona Koźmińskiego, Jagiellońska 57/59, 03-301 Warsaw, Poland)

  • Bartłomiej Iwanowicz

    (Department of Accounting, Akademia Leona Koźmińskiego, Jagiellońska 57/59, 03-301 Warsaw, Poland)

Abstract

Purpose: The main purpose of this paper is to determine how particular audit firms deal with ISA 701 requirements and the society expectations towards reporting the materiality levels. Additionally, the aim of this paper is to range the assertions in terms of the frequency of their occurrence. Design/methodology/approach: The tested sample consisted of 317 companies listed on Warsaw (158 companies) or London (159 companies) stock exchange. The analysis was divided into companies from the following ten market indexes (WIGs): construction, IT, real estate, food, media, oil and gas, mining, energy, automotive and chemicals. The research was executed based on the analysis of annual consolidated financial statements (annual reports) and independent auditor reports that were published by in-scope entities for the latest twelve-months period available as at the date of the research (mostly periods ended on 31 December 2017 and 31 March 2018). All values were denominated to euro (EUR) with use of average exchange rates published by the National Bank of Poland. All performed analyses and developed charts were supported by Microsoft Power BI data analysis tool. Findings: The general conclusion, which may be drawn from this research, is that implementation of ISA 701 and materiality disclosure limited the audit expectation gap. Detailed observations are described throughout the paper and summarized in the conclusions section. Originality/value: This study extends the prior research by providing various dimensions of the analysed matters. It contributes to understanding of the audit expectation gap and investigates on methods of minimizing it.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:4:p:161-:d:276997
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    References listed on IDEAS

    as
    1. Elzbieta Izabela Szczepankiewicz, 2012. "The Role And Tasks Of The Internal Audit And Audit Committee As Bodies Supporting Effective Corporate Governance In Insurance Sector Institutions In Poland," Oeconomia Copernicana, Institute of Economic Research, vol. 3(4), pages 23-39, December.
    2. Imen Jedidi & Chrystelle Richard, 2009. "The Social Construction of the Audit Expectation Gap: The Market of Excuses," Post-Print halshs-00460146, HAL.
    3. Ojo, Marianne, 2006. "Eliminating the Audit Expectations Gap : Myth or Reality?," MPRA Paper 232, University Library of Munich, Germany, revised Sep 2006.
    4. Aneta Ptak-Chmielewska, 2019. "Predicting Micro-Enterprise Failures Using Data Mining Techniques," JRFM, MDPI, vol. 12(1), pages 1-17, February.
    5. repec:dau:papers:123456789/3906 is not listed on IDEAS
    6. 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.
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    Cited by:

    1. Mahmoud Elmarzouky & Khaled Hussainey & Tarek Abdelfattah, 2022. "Do Key Audit Matters Signal Corporate Bankruptcy?," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 21(3), pages 315-334, September.
    2. Lioara-Veronica Pasc & Camelia-Daniela Hategan, 2023. "Disclosure of Key Audit Matters: European Listed Companies’ Evidence on Related Parties Transactions," IJFS, MDPI, vol. 11(3), pages 1-12, June.

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