Economics/ 7. Accounting and Auditing

BABALOLA, Yisau Abiodun (PhD student)

East Ukrainian National University, Lugansk, Ukraine

Audit Expectation Gap in Nigeria: The Role of Accounting Information System

1.0 Introduction

The role of accounting information system in bridging the gap between the public expectations of the actual duties of the auditor in ensuring that the financial statements and records of organizations are prepared to conform to accounting standards and generally acceptable accounting principles (GAAP). This area of research becomes more demanding going by barrage of fraud and financial misrepresentation that have come to characterize accounting statements of corporate entities in recent times. This trend has consequently resulted in loss of confidence in the audited financial. Records of firms prepared by firms and audited by auditors. As posited by Lee, Ali and Kandasamy (2008), the audit expectation gap is critical to the auditing profession because the greater the unfulfilled expectations of the public, the lower the credibility, earning potential and prestige associated with the work of auditors.

In the1980s/1990s working parties were established by various professional bodies to look at the auditors’ role in respect of fraud, in particular, fraud reporting. The Profession gave some ground in relation to fraud reporting responsibilities but avoided any extension in detection responsibilities.

However, little attention has been paid to how the use of accounting information system can assist in mitigating this agency problem of the auditor not duly representing the interest of the stakeholders as envisaged. As enthused by (Singh, 2004), this does not mandate concurrent auditors to have the expert knowledge of information technology but requirement of audit working knowledge is very important and fast becoming irresistible in today’s conventional business world where information, communication and technology (ICT) is fast becoming an essential input into the service and production industry.

To investigate the role of accounting information system in bridging the auditor’s expectation as perceived by the auditors themselves and the general public, we will administer well structured questionnaire on sizeable number of institutional investors, audit clients and internal auditors; elicit responses from them and then subject to empirical analysis for necessary policy suggestions.

Theoretical Framework

In the literature, the theoretical propositions explaining the demand for audit services have been rather evolutional, on the one hand, and revolutional, on the other hand. In effect, there have been different theories justifying the need for auditing service and the terms of reference as to the tasks and duties of the auditors. Beginning with the ‘Quasi‑Judicial Theory’ regards the auditor as a judge in the financial information distribution process. However, this theory cannot be sustained because an auditor's decisions and decision process are not publicly available; the doctrine of precedence/consistency is not guaranteed in auditing; an auditor's independence differs from a judge's independence because of the different reward systems involved. Secondly, the ‘Agency Theory’ a reputable auditor is appointed not only in the interest of third parties, but also in the interest of management and a company is viewed as the result of more or less formal 'contracts', in which several groups make some kind of contribution to the company, given a certain 'price'. But, the agent (who happens to be the 'management') has a considerable advantage over the principals regarding information about the company. In another vein, the agency theory can also be used to explain the supply side of the audit market where by the contribution of an audit to third parties is basically determined by the probability that the auditor will detect errors in the financial statements or other irregularities, such as fraud or illegal acts and her willingness to report these errors (e.g., by qualifying her auditor's report), even against the wish of the auditee (auditor independence).

Review of Empirical Studies

Rehana (2010) in an empirical study posited there have been conflicting views regarding the role of auditing education in narrowing this gap. In this study, Rehana (2010) investigated whether there is evidence that the provision of auditing subject as part of business degree programme contributes to narrowing that part of the audit expectation gap which results from a misunderstanding of audit regulations.

Conclusion

From the foregoing, it is evidenced that accounting information technology could serve as a tool to bridge the accounting expectation gap and consequently reduce the agency problems characteristic of this organizational problem. If attention could be paid to information system, more confidence will be reposed in the audited reported of firms and the accountant opinion will be more respected and the institutional investors can be guaranteed of the security of their investments and the credibility of financial statements can be assured.

References

Rehana, F. (2010), “An Empirical Study on Audit Expectation Gap: Role of Auditing Education in Bangladesh” Stamford University, Munich Personal RePEC Archives, Bangladesh.

Ali A.M. and S. Kandasamy (2008), “Towards Reducing the Audit Expectation Gap: Possible Mission?” Accountants Today.

Singh, R.K. (2004), “Bridging all the Expectation Gap – The Changing Role of Concurrent Auditors” The Chartered Accountant.