The Expectations of the Users of Financial Statements in Saudi Arabia - Dissertation Example

The function related to auditing and accounting is of paramount importance to every business organization. This is generally attributed to the fact that accounting practices help companies keep track of their transactions and provide information through the use of financial reporting to the end-users (Beck 1973; Berry, Otahata and Saleh 2000; Gray and Manson 2000; Galloway 2003). To ensure its validity and credibility, this is likewise authenticated based on the code of ethics and regulations. Hence, in this process, accountants and auditors then play a significant role in terms of eliminating the communication gap between the managers of enterprises and the end-users of the financial reports (Giacomino 1994; Galloway 2003). 

This is usually done through their authentication, reliability, and the correctness of their financial reporting (Mautz and Sharaf 1961; Manson and Zaman 2001). The accountants and auditors play an important role as they manage the finances of the companies (Manson 2000; Galloway 2003). Unfortunately, a number of issues have significantly affected the said process. In fact, one of the most important consequences is related to the existence of the so-called audit expectation gap. The audit expectation gap is true, one of the most important issues related to the audited function as it has relatively affected the development of auditing standards and practices (Godsell 1992; Best, Buckby and Tan 2001; Fadzly and Ahmad 2004).

Members of the profession even attributed the existence of this issue to the significant increases in the litigations and criticisms they face (Mednick 1986; Berry, Otahata and Saleh 2000). The audit expectation gap pertains to the difference between the expectations of the public in relation to an audit. The importance of this factor to the auditing profession lies in the fact that it tends to lower the credibility of the latter as well as their earnings potential (Godsell 1992; Best, Buckby and Tan 2001; Lin and Chen 2004;).

More significantly, the presence of this problem also lowers the prestige of the profession (Beck 1973; Berry, Otahat and Saleh 2000; Best, Buckby and Tan 2001).

Various literature has already been published in relation to the audit expectations gap between the auditors and the users of financial statements. This literature emphasizes that the expectations gap is usually evident from two points of view: (1) the users of the financial statements and (2) the auditors.

In addition, there are also four expectation issues connected with this; these are (1) audit assurance which pertains to the role and functions that the auditors must fulfill, (2) the level of quality in relation to the performance of the audits, (3) structural issues and regulatory issues that significantly affect the independence of the accountants/auditors, and (4) the manner by which the said audits are reported, taking into consideration the inconsistencies in terms of the construction of the different meanings contained in the audit reports.

Previous studies conducted in relation to the auditing experiences gap tend to focus on developed countries and at the same time, have significantly failed to give paramount importance to the political and historical contexts wherein the said expectations are formed. Aside from this, the common recommendation is to publish strict guidelines with respect to accounting and auditing to cater to the problem at hand. However, some of the said studies mention that the said recommendations do not usually apply to all countries, most especially the developing ones taking into consideration the differences as to the ideological and legal structures that govern it.