Text PAQ 1.32 Expectations gap

Discuss the expectations gap that could exist for the audit of MaxSecurity. Consider the existence of any special interests of the users of MaxSecurity’s financial reports.

The expectations gap is the difference between the expectations of financial report users and the auditor’s performance.

Special users for MaxSecurity could include:

• Government agencies, including Department of Foreign Affairs and Trade, who would be interested in the purchases by foreign governments and individuals of this type of security vehicle.
• Competing companies and/or governments who would be interested in sensitive information about the construction of the vehicles and the identity of the purchasers.
• Wollongong local government and NSW State Government, who would be interested in the financial viability of the business and its impact on local employment and economic activity.
• Suppliers of technological equipment – it is possible that the Terrain Master uses specialised components. These suppliers would be interested in the financial viability of the business and the likelihood of its timely payment for goods purchased on credit. Such equipment could be made to specialised order with limited alternative customers. The suppliers would have large investments to support eh manufacture of these specialised components.
• Other potential customers
• Usual relationships would exist with lenders, shareholders, employees.

Discussion:

Consider how well MaxSecurity’s financial reports would provide the information that these users would require, given the highly sensitive and confidential nature of the manufacturing process. Management is responsible for preparing the reports, but the users may look to the auditors to make sure that the required information is provided. Also consider how well the audit process would be able to meet the users’ needs for this information.