No abstract

This study compares the perceptions of the users and preparers of financial statements to those of auditors, concerning messages conveyed by review and audit reports. Concern has been expressed about the ability of different groups to differentiate between the level of assurance provided by these engagements. All groups perceived that review reports provided less assurance than audit reports. Users placed less responsibility on the auditor with a review, whilst preparers did not perceive any difference in the auditor’s responsibility. Preparers and users placed a greater responsibility on management than did auditors, for maintaining internal control and accounting records. Auditors had stronger beliefs concerning reliability of the financial information with both reports, reflecting the scepticism of users and preparers and a need for auditors to improve their performance if auditing is to achieve its social function. Auditors also need to improve communication of the level of assurance provided and extent of work performed, and perceptions of auditor independence. The profession’s response to expectation gap issues has been largely defensive. This paper indicates a constructive and proactive approach is needed.

This study examines the characteristics of companies that choose to have a full audit of their interim financial statements, as distinct from a review. A cross‐section of 252 firms that had submitted interim financial reports to the Australian Stock Exchange were selected from the Business Review Weekly (BRW) list of top 1,000 companies. A direct logistic regression analysis was undertaken to assess whether voluntarily adopting an audit was related to size (assets), leverage, minority interest, profitability, industry, and whether the company had used a Big‐6 audit firm. The results indicate that the level of leverage is a significant predictor of companies adopting a review, whereas use of a Big‐6 audit firm was associated with conducting an audit. In addition, there is some evidence companies in the financial services industry were positively associated with conducting an audit.