The audit expectation gap and reasonable care and skill

You are a senior auditor at JC Accounting Ltd. You had morning tea with Matt, a junior auditor who had just graduated. You asked about his view of the audit expectation gap. He said that he heard some auditors complain about the general publics unreasonable expectations of auditing; for example, that an auditor would detect and prevent all fraud. Mat also said that he recently studied the Kingston Cotton Mill case, and he is confused about the judges statement he [the auditor] is a watchdog, but not a bloodhound.

a) Outline the concept and identify the components of the audit expectation gap.

b) Explain the requirements for an auditor to carry out their duty to exercise reasonable care and skill in an audit engagement. Ensure that you discuss how the concept of reasonable care and skill has changed over time and support your discussion with examples of relevant legal cases and court judgements that were covered in the course content.

c) Identify five possible solutions to narrow the audit expectation gap with explanations of how the solutions could be applied.