Abstract
In this paper we test the effectiveness of explanations as mandated by the revised ISA 700 auditor's report in reducing the audit expectation gap. German auditors and financial statement users participated in an experiment where they read a summary of a firm's financial statements and an auditor's report, the latter of which we manipulated as being the auditor's report including the explanations as mandated by ISA 700 versus a mere audit opinion‐only version. We elicited participants' perceptions about auditor versus management responsibilities and financial statement reliability. We find strong evidence for a persistent expectation gap with respect to the auditor's responsibilities. Meanwhile, auditors and users reach a reasonable belief consensus regarding management's responsibilities and financial statement reliability. Most notably, explanations of the ISA 700 auditor's report do not result in a smaller expectation gap. Our findings suggest that the audit opinion alone may signal sufficient relevant information to users.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
