THE AUDIT EXPECTATION GAP IN SINGAPORE

EVIDENCE IN SUPPORT OF THE LONG-FORM AUDIT

REPORT

Peter J Best
Sherrena Buckby
School of Accountancy
QUT
Clarice Tan KPMGPeat Marwick Singapore

WORKING PAPER NO. 1999-012

The Audit Expectation Gap in Singapore Evidence in Support of the Long-form Audit Report

Peter J Best
Associate Professor
School of Accountancy
Queensland University of Technology
Brisbane Australia
Email: p.best@qut.edu.au
Sherrrena Buckby
Lecturer
School of Accountancy
Queensland University of Technology
Brisbane Australia
Clarice Tan
Auditor
KPMG- Peat Marwick
Chartered Accountants
Singapore
This paper is not to be quoted without the authors permission.

Abstract
This paper reports the results of a study of the audit expectation gap in Singapore, conducted in 1996. The motivation for this
study was Singapores status as one of the dragon countries in Asia with a large international financial market in which
foreign and local investors depend on audited financial reports for investment decisions. Currently, in Singapore short-form
audit reports are to be attached to financial reports, unlike the long-form reports required by major countries like the United
States, Australia and United Kingdom.

The research method adopted in this paper is a replication of an Australian study documented in Schelluch (1996). That
study found evidence of a reduction in the audit expectation gap through the use of the long-form audit report introduced in
Australia in 1994. It was hypothesised that the expectation gap would have been considerable in Singapore relative to the
results found by Schelluch (1996). The results provide evidence of the existence of a moderate audit expectation gap in
Singapore but not to the extent envisaged given the current usage of a short-form audit report. The introduction of a longform audit report in Singapore could be beneficial in improving users understanding of the nature, purpose and limitations of
audit reports.
INTRODUCTION
The research literature examining the nature and extent of the audit expectation gap has been considerable over the past
twenty years [see Beck (1973); Arrington, Hillison and Wilson (1983);ASCPA (1994)]. Research has been conducted on the
impact of modifications to the wording in audit reports as a means of reducing this gap. The adoption of long-form audit
reports has proven to be effective in reducing the differences between auditors and users perceptions of the audit function in
a number of areas [see Kelly and Mohrweis (1989); Hatherly, Innes and Brown (1991); Gay and Schelluch (1993); Schelluch
(1996)].

Various definitions have been proposed for the audit expectation gap. Porter (1988) identified two components of the audit
expectation gap:
a) the difference between what society expects auditors to achieve and what they can reasonably expect to
accomplish (designated the reasonableness gap); and
b) the difference between the responsibilities society reasonably expects of auditors and auditors
performance (designated the performance gap).
This paper does not address issues associated with the performance gap. Societys reasonable expectations of auditors have
become embodied in auditing standards and legislation, and have also developed further through decisions of the courts (e.g.
negligence actions) and the conduct of peer reviews (mandatory or voluntary). The main focus of this study is differences
between the expectations of users of audited financial reports and auditors perceptions of their role (that is, primarily the
reasonableness gap).

This paper reports the results of a study of the audit expectation gap in Singapore, conducted in 1996. The motivation for this
study was Singapores status as one of the dragon countries in Asia with a large international financial market in which
1

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