A Partial Least-Squares Structural Equation Modeling Approach to Investigate the Audit Expectation Gap and Its Impact on Investor Confidence: Perspectives from a Developing Country

Fengju Xu and Taslima Akther
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Fengju Xu: School of Management, Wuhan University of Technology, Wuhan 430070, China
Taslima Akther: School of Management, Wuhan University of Technology, Wuhan 430070, China

Sustainability, 2019, vol. 11, issue 20, 1-21

Abstract: The aim of this study is to empirically explore the existence of the audit expectation gap and its impact on investors’ confidence. As a maiden attempt to assess these relationships, we developed a model with higher order constructs using a partial least-squares structural equation model (PLS-SEM). Based on a questionnaire survey with auditors and institutional investors, as one of the main users of audited financial statements, this study explored investors’ perceptions of both unreasonable and sensible audit expectation gaps from diverse aspects. The findings of this study revealed that the existence of an audit expectation gap was negatively related to investors’ confidence, and the greater the audit expectation gap was, the lower the investors’ confidence on audit. It was also found that auditors’ perceived independence and improved level of communication were negatively related with the audit expectation gap but positively related with investors’ confidence. Moreover, the monitoring role of independent audit oversight acts as a moderator among auditors’ perceived independence, auditors’ improved level of communication, audit expectation gap, and investors’ confidence. As the innate characteristic of an audit is to resolve conflict between owners and management of the organization, this study provides insight about what the investors (owners) expect from the audit and how to mitigate those expectation gaps.

Keywords: audit expectation gap; investors’ confidence; auditors’ perceived independence; auditors’ improved communication; independent audit oversight (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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