Recent trends in the public perception gap with respect to the statutory auditor : a Maltese perspective

Abstract

Purpose: The aim of this study is to analyse recent trends in the perception gap that exists between shareholders and auditors in Malta with respect to the responsibilities of the auditor, and the reliability and decision usefulness of audited financial statements. Design: This study is based on primary data obtained by means of questionnaires addressed to auditors and a sample of shareholders. Response rates were 22% and 39% for auditors and shareholders respectively. Findings: Research findings indicate the existence of a significant expectation gap in the responsibility of the auditor for fraud detection and prevention, for maintaining accounting records, for the security of the internal control structure of the entity and for giving a guarantee of the long-term survival of the company. Furthermore, significant differences were found in the extent of assurance that an auditor provides. On the other hand, although a gap in perceptions is present, both groups of respondents consider audited financial statements as being useful for decision-making. However, they have opposing views concerning the use of audited financial statements as a verification of the stewardship of the company's management. Conclusions: Research findings show that for the majority of the statements, the gap in perceptions has remained at the same level as when Desira (2004) carried out his study. However, there are areas in which the Auditor Expectation Gap has narrowed or even widened. A positive trend was noted as regards to the impartiality of the auditor and the 'true and fair view' of financial statements. On the other hand, the expectation gap has widened in relation to the extent of assurance provided by an auditor that audited financial statements are free from material misstatements and the use of audited financial statements for decision-making. Implications: The research findings obtained in this study come as no surprise given the current scenario which is characterised by various financial scandals which result in questions being raised on the role of the auditor. Efforts to change the perception of the general public on the role of the auditor must persist so as to reduce the present misconceptions relating to the auditing profession and thus, help re-build trust in the auditing profession.