Evidence of the audit expectation gap in Singapore

This paper reports the results of a study of the audit expectation gap in Singapore, conducted in 1996 and supports the call for a change in audit report format and wording to a longer form audit report currently in use in Australia and America. The main aims of the study were to measure the level and nature of audit expectation gap in existence in Singapore in the mid 1990’s and to compare the findings of this study with those of Schelluch (1996) in Australia after the introduction of the long-form audit report. The study also aims to add further support to the findings of Low (1984) and Low et al (1988) who argued that the short-form audit report should be replaced in Singapore by the long-form report to assist in reducing the audit expectation gap. The motivation for performing this research in Singapore was the fact that little research on the audit expectation gap has been conducted in Singapore in recent years and Singapore’s status as one of the “dragon countries‿ where a large international financial market heavily depends on audited financial reports for investment decision making. The research method adopted in this paper is a replication of an Australian study by Schelluch (1996), whose results indicated a reduction in the audit expectation gap in Australia through the use of the long-form audit report in the area of auditor responsibilities. Due to the continued use of the short-form audit report in Singapore, a high level of audit expectation gap was expected to be found in this study, particularly in the area of auditor responsibilities. The results from this study found evidence of a wide audit expectation gap in Singapore as predicted, particularly in the areas of auditor responsibility for fraud prevention and detection and maintenance of accounting records, the freedom of the entity from fraud and the exercising of auditor judgment in the selection of audit procedures. The results from this study provide relevant and recent evidence of the existence of an audit expectation gap in Singapore. The comparison of this study with the findings of Low et al (1988) and Schelluch (1996) indicate that a wide expectation gap does exist in Singapore, and that it is much wider in nature to that found in Australia. The findings of Schelluch (1996) clearly indicate that the gap in Singapore could be considerably narrowed by the adoption of a long-form audit report similar to the adoption in Australia assuming Australian evidence can be generalised to the Singaporean situation. The results of this study strongly support the observation that the adoption of the long-form audit report in Singapore is long overdue if the profession in Singapore are serious about reducing the audit expectation gap and thus improving investment decision making amongst the users of financial statements.