Certek Technologies Inc. (Certek) is a biotechnology company whose stock traded on a major Canadian stock exchange. Over the 22 months following its initial public offering in May 2009, Certek's stock rose an astounding 1,350 percent. In mid-March 2000, Certek's stock began to decline. Then, in April 2000, the stock price plummeted when it was announced that Certek had stopped all research activities on its major projects due to unsatisfactory scientific results. You, CA, are sitting with some friends who make the following comments:
Ruby: I lost a bundle on the Certek stock. The stock went up with every press release. It seemed like the company was going to solve every medical problem in the world.
I thought the auditors had a responsibility to investors and the capital markets for information released to the public.
Omid: I don't understand how audited financial statements are the least bit useful. Certek was investing huge amounts of money in researching new pharmaceutical products, yet the financial statements provided no information on whether its research would develop into viable products. Couldn't the auditors take some responsibility for evaluating the research that companies are doing?
Required
(a) What is the auditor's responsibility for information released to the public?
(b) Discuss Omid's comment with reference to the expectation gap.
(c) What can auditors do to reduce the expectation gap?