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Auditing (Supply and Assurance services)

5 important questions on Auditing (Supply and Assurance services)

What are 5 incentives for auditors to do their job well?

1. Ethics (Weber 1905), 2. Integrity (Jensen 2011)

3. Wealth at risk from litigation (Dye 1993)
4. Reputational investments (“costly to build, easily lost”)
5. Quasi-rents (DeAngelo 1981)

What is the audit expectation gap?

Because we don't exactly know what the auditor is doing (black box), there exists an expectation gap. This gap is the difference between what the people expect from the auditor and what the auditor is doing. So we have the performance, the quality they deliver and we have what people think they should do.

What are the three parts of the audit expectation gap?

1. Deficient performance (reasonable expectation) 16%
2. Deficient standards (reasonable expectation) 50%
3. Unreasonable expectations 34%

What two gaps does the audit expectation gap consists of?

1. Performance gap
2. Reasonableness gap

Hribar, Kravet and Wilson 2014

These researches want to investigate the determinants of the audit fee. A lot of factors have effect on the fees. For example, Big 4 companies have higher fees and the higher the number of employees, the higher the fees.

The question on the page originate from the summary of the following study material:

Lecture 7 Auditing (Supply and Assurance services)

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