Corporate Reporting On The Internet and The Expectations Gap New Face of An Old Problem

Accounting and Business Research
ISSN: 0001-4788 (Print) 2159-4260 (Online) Journal homepage: https://www.tandfonline.com/loi/rabr20
Corporate reporting on the Internet and the

expectations gap: new face of an old problem
Richard T. Fisher & Samuel T. Naylor
To cite this article: Richard T. Fisher & Samuel T. Naylor (2016) Corporate reporting on the
Internet and the expectations gap: new face of an old problem, Accounting and Business Research,
46:2, 196-220, DOI: 10.1080/00014788.2015.1029866
To link to this article: https://doi.org/10.1080/00014788.2015.1029866
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Accounting and Business Research, 2016
Vol. 46, No. 2, 196 –220, http://dx.doi.org/10.1080/00014788.2015.1029866
Corporate reporting on the Internet and the

expectations gap: new face of an old
problem
RICHARD T. FISHERa∗ and SAMUEL T. NAYLORb
a
Department of Accounting & Information Systems, School of Business and Economics, College of
Business and Law, University of Canterbury, Private Bag 4800, Christchurch 8140, New Zealand; bAudit
New Zealand, Christchurch, New Zealand
While the practice of Internet financial reporting (IFR) has evolved rapidly, research has
questioned the corresponding responsiveness of the auditing profession. This study
investigates the existence and nature of an expectations gap that may have arisen in relation to
the auditor’s role and responsibilities with respect to IFR. Based on a questionnaire survey in
New Zealand, results confirm the existence of an expectations gap between auditors and
stakeholder groups. Specific responsibilities contributing to deficient performance, deficient
standards, and unreasonable expectations components of this gap are identified. The principal
pronouncement dealing with auditors’ relevant responsibilities in New Zealand is AGS 1003
Audit Issues Relating to the Electronic Presentation of Financial Statements and Related
Auditor’s Reports. AGS 1003 discusses, inter alia, the auditor’s role and responsibilities in
relation to electronic financial statements before and after online publication, and the
implications of IFR for the auditor’s report and other audit communications. The study argues
that the authoritative status of such guidance statements may contribute to a perpetuation of
the gap. Furthermore, the profession is urged to avoid ‘standard’ professional responses to the
issues, which risk being labelled insufficient and/or strategically motivated. The findings have
policy implications for standard-setters internationally.
Keywords: auditing; audit expectations gap; Internet financial reporting; audit standards
1. Introduction
The diffusion of corporate reporting on the Internet has been a well-studied phenomenon in the
accounting literature over the last 15 years. This research has provided insights into the nature and
determinants of such practices across a wide range of settings (including developed and develop-
ing countries within both the public and private sectors).1 Recent evidence suggests that a large
proportion of listed company websites now embrace technologies associated with higher levels of
∗
Corresponding author. Email: richard.fisher@canterbury.ac.nz
# 2015 Taylor & Francis

Accounting and Business Research 197
(more sophisticated) Internet use (Hindi and Rich 2010, CICA 2010) and that this appears to have
the blessing of regulators, such as the US Securities and Exchange Commission (SEC 2008),
Canadian Securities Administrators (CSA 2002), and UK Financial Reporting Council (FRC
2009, 2011a, 2011b).
While supporting the changes in business and financial reporting brought about through
recent rapid technological change, regulators have also expressed concern that auditors’ knowl-
edge, skills, and approaches may be found wanting unless proactive steps are taken to combat the
ensuing demands (Public Oversight Board 2000, p. 171). Institutional responses to the auditing
issues arising from corporate reporting on the Internet have been reviewed by both Lymer and
Debreceny (2003) and Fisher et al. (2004). Both studies conclude that the extant national and
international audit pronouncements fall ‘considerably short as a response to the challenges that
arise from current and future Internet technologies’ (Lymer and Debreceny 2003, p. 104). Further-
more, in reviewing actual audit practices, Fisher et al. (2004) found little evidence that audit firms
had adapted well to the online reporting environment. A review of current pronouncements
suggests that little has been done to clarify the roles and responsibilities of the auditor in relation
to Internet financial reporting (IFR) in the period since the reviews of Lymer and Debreceny
(2003) and Fisher et al. (2004). In this context of rapidly evolving technology and reporting prac-
tices yet slow-changing auditing pronouncements and practices, the conditions appear to exist for
the emergence of an audit ‘expectations gap’ between users and preparers of online reports and
the auditors of those reports.
The purpose of this study is to investigate the existence and nature of any such gap in relation
to the auditor’s role and responsibilities with respect to IFR. The extensive empirical literature on
the audit expectations gap has confirmed the existence of a gap in many countries between the
perceptions of financial auditors and various stakeholders regarding aspects of auditors’ role
and responsibilities. Porter et al. (2012a, 2012b), for example, found the existence of similarly
structured and composed expectations gaps in both the UK and New Zealand (NZ) in 2008. Fur-
thermore, such gaps were found to have also existed in earlier periods (1999 in the UK and 1989
in NZ). Indeed, it is likely that divergent expectations have existed at least since the beginning of
the statutory audit (Humphrey et al. 1992). While a range of issues have been examined in the
literature as constituting and sustaining the gap, no prior study has comprehensively examined
the gap associated with auditor’s responsibilities and performance with regard to IFR. This rep-
resents an important extension to the expectations gap literature. While corporate websites have
increasingly become a primary source of financial information about individual companies for
many user groups (Mazars 2009), the distinctive nature of IFR has challenged the traditional
boundaries of the audit function. Unlike hardcopy financial statements, for instance, Internet-
based annual reports are susceptible to inappropriate alteration subsequent (or prior) to publi-
cation (Fisher et al. 2004, Hindi and Rich 2010, Porter et al. 2012b). Furthermore, in the
paper-based financial reporting environment, the extent to which other information is required
to be reviewed by the auditor is typically limited to information contained within the annual
report package (Debreceny and Gray 1999, Lymer and Debreceny 2003). Internet-based annual
reports, however, may be just one component of a company’s investor relations website and
the auditor’s responsibility for evaluating web-based information presented with (or hyperlinked
to/from) an electronic version of the annual report is less clear (Lymer and Debreceny 2003,
Fisher et al. 2004, Hindi and Rich 2010).
To investigate these issues, we undertook a NZ-based survey of key stakeholders in the finan-
cial reporting process in order to ascertain whether an expectations gap has arisen in relation to
auditors’ responsibilities for IFR dimensions of the attest function. NZ was considered an appro-
priate setting for this study because its legal systems and institutional arrangements surrounding
financial reporting and the auditing profession are broadly comparable to those found in many
198 R.T. Fisher and S.T. Naylor
jurisdictions internationally, including the UK and Australia.2 Furthermore, NZ has previously

been the focus of several significant studies in the audit expectations gap literature (Porter
1993, Porter et al. 2012a, 2012b). The study’s sample consisted of financial auditors, preparers
(chief financial officers (CFOs) of listed companies), sophisticated users of financial statements
(investment analysts and brokers), and shareholders (members of the New Zealand Shareholders
Association). Our findings are consistent with the existence of an ‘expectation – performance gap’.
In further analysing this gap, we identify specific responsibilities (actual or potential) which con-
tribute to components of this gap, namely deficient performance, deficient standards, and unrea-
sonable expectations.
Our paper makes several academic and practical contributions. First, the study extends the
existing audit expectations gap literature into the relatively new domain of IFR. Second, the
study confirms the usefulness of the ‘audit expectations– performance gap’ as an analytical frame-
work for policy-relevant research focusing on the role and responsibilities of external auditors. Last,
the findings are of particular relevance to securities regulators, assurance standard-setting bodies,
and the wider accounting and user community. Regulators are presently promoting the Internet as a
key, or in the case of the USA, the primary channel for information dissemination, in order to
achieve transparency, liquidity and efficiency in capital markets (ASIC 2000, UK Listing Authority
2005, SEC 2008, European Commission 2013), and will clearly be concerned with ambiguities in
the role and responsibilities of the auditor with respect to IFR. Inappropriate reliance on the work of
the auditor brought about through fundamental misunderstandings expose audit firms to potential
liability and will undermine users’ confidence in the market. These impacts are further compounded
by the global reach of corporate websites and present obstacles to the ongoing evolution towards
advanced implementations of corporate reporting practices on the Internet.
The remainder of the article proceeds as follows. The next section reviews both the existing lit-
erature and relevant professional pronouncements, followed by development of the study’s research
questions. Section 3 outlines the research method, while Section 4 presents the study’s results.
Section 5 discusses the results, providing some reflections on the significance of the analysis and
its implications for corporate reporting on the Internet. Section 6 concludes the article.
2. Prior literature
2.1. Expectations gap
Historical analysis of public speeches, legal cases, and other documents has revealed ambiguity
and confusion surrounding the role, responsibilities, and performance of external auditors dating
back over 100 years in the UK (Humphrey et al. 1992, Chandler et al. 1993). In the context of
maintaining the public’s confidence in the profession, Limperg wrote in the 1930s of the impor-
tance of accountants not betraying the public’s expectations of them and, equally, not arousing
greater expectations than can be justified by the work performed (Limperg 1933, as reproduced
in Limperg Instituut 1985, p. 18). Investigations in the US (Commission on Auditors Responsi-
bilities (AICPA 1978), Canada (CICA 1977), and the UK (a series of Department of Trade Inspec-
tors’ Inquiries in the UK Flint 1985) raised the possibility that such a gap may exist in relation to
the role and responsibilities of the auditor. This formal acknowledgement was the catalyst for a
succession of studies aimed at empirically confirming the existence and nature of the expectations
gap primarily using opinion-eliciting surveys.
The results of these studies have generally confirmed the existence of a gap across a range of
different jurisdictions.3 Furthermore, the specific issues found to contribute to the gap have been
shown to be remarkably similar across studies, irrespective of time period or geographical
region.4
To facilitate greater understanding of the reason for the gap’s existence, the Commission to
Study the Public’s Expectations of Audits (CICA 1988) believed that it was necessary to concep-
tualise the gap more broadly than it had been previously conceived. They viewed it as an ‘expec-
tations– performance’ gap representing the ‘ . . . gap between the highest public expectations from
audits’ and ‘ . . . public perceptions of what is actually obtained from audits’ (p. 6), regardless of
whether or not those expectations were reasonable or perceptions realistic. In one of the most
widely cited studies into the expectations gap, Porter (1993) adapted the Commission’s ‘expec-
tations– performance’ representation of the gap in studying its existence in NZ. Porter divides
the gap into two distinct elements:
. ‘Reasonableness gap’ – a gap between society’s expectations of auditors and what auditors
can reasonably be expected to achieve.
. ‘Performance gap’ – a gap between what society can reasonably expect of auditors and
what they are perceived to achieve.
Porter further divides the ‘performance gap’ into a:
. ‘Deficient standards gap’ – a gap between society’s reasonable expectations of auditors and
auditors’ existing professional and legal responsibilities; and a
. ‘Deficient performance gap’ – a gap between auditors’ existing responsibilities and
society’s perceptions of auditors’ performance of those responsibilities.
Several replications of Porter’s work both in NZ and in the UK support the persistence of all
components of the gap over an extended period of time (see Porter and Gowthorpe 2004, Porter
et al. 2012a, 2012b) notwithstanding efforts by the profession to address the gap through such
means as changing the wording and content of the standard auditor’s report (Hatherly et al.
1991, Gray et al. 2011) and other generally evolutionary (rather than revolutionary) changes to
audit requirements.5,6
The persistent nature of the gap is seen by several researchers as no accident, but rather the
natural consequence of tensions between a largely self-interested profession and the public
they serve. From this perspective, the seemingly insufficient and reactive responses of the pro-
fession may be viewed as a strategic response to a ‘game’ being continuously played out
between actors possessing asymmetric information about the underlying nature of auditing
(Fogarty et al. 1991, Gaa 1991, Hooks 1992, Sikka et al. 1998). Sikka et al. (1998), for instance,
argue that the continual shifting relations of power between auditors and segments of society
result in the preferred meanings of the nature, practice and/or outcomes of audits continually
being (re)negotiated and transformed.
Recent developments in corporate reporting in areas such as corporate social reporting (CSR)
and IFR are likely to have prompted ‘renegotiation’ of the preferred role expectations of auditors;
and to have changed the nature and composition of the audit expectations – performance gap. In
relation to CSR, for instance, recent research has confirmed the existence of an expectations gap
in the greenhouse gas emissions assurance setting (Green and Li 2011). In relation to IFR, the
complex interplay between developments in information technology/reporting media and
associated changes in the expectations of companies and their responsibilities are likely to
have influenced both auditors’ and society’s preferred role expectations of auditors. However,
no study to date has considered the detailed and specific implications of IFR on the
expectations gap. The next section reviews the prior literature examining assurance issues associ-
ated with IFR.
2.2. IFR and the auditor

IFR has increasingly gained legitimacy as a means for reporting entities to discharge their report-
ing obligations.7 However, as the examples provided in Section 1 illustrate, IFR practices have
challenged the traditional boundaries of the audit function giving rise to a distinctive set of audit-
ing issues (Debreceny and Gray 1999, Lymer and Debreceny 2003, Fisher et al. 2004). Broadly
speaking, the issues brought into focus by the development of IFR can be classified into five
areas:8
(1) The role and responsibility of auditors for information placed on corporate websites;
(2) The potential for an inappropriate association of the auditor’s report;
(3) The inappropriate omission of the auditor’s report from the website;
(4) The appropriateness of audit procedures; and
(5) The nature, timing, form, and content of the auditor’s report on the Internet.
Both Fisher et al. (2004) and Lymer and Debreceny (2003) found that relatively few auditing
standard-setters had attempted to engage with these issues. The specific jurisdictions in which rel-
evant pronouncements were identified by these two studies included NZ (ED/AGS-1003: Audit
Issues Relating to the Electronic Presentation of Financial Reports (Institute of Chartered
Accountants of New Zealand 2003)), the UK (Bulletin 2001/1: The Electronic Publication of
Auditors’ Reports (Auditing Practices Board 2001)), the US (Interpretation of AU550 Other
Information in Electronic Sites Containing Audited Financial Statements (American Institute
of Certified Public Accountants 1997)) and Australia (AGS 1050 Audit Issues Relation to the
Electronic Presentation of Financial Statements (Australian Accounting Research Foundation
1999)). Based on their respective reviews of these pronouncements, it is apparent that,
. . . notwithstanding the recognition by various audit standards bodies of the need for further guidance
to auditors on the implications of Internet financial reporting; the actual pronouncements made thus
far . . . fall considerably short as a response to the challenges that arise from current and future Internet
reporting technologies. (Lymer and Debreceny 2003, p. 103)
The results of several empirical studies also raise concerns over the efficacy of audit practices
with respect to IFR. In an analysis of NZ-listed company websites, for example, Fisher et al.
(2004) found instances of inappropriate omission or presentation of auditors’ reports, while Kha-
daroo (2005) found many instances of Malaysian-listed companies providing hyperlinks from
audited financial information to unaudited information in ways that could potentially blur the dis-
tinction between the two forms of information.9
2.3. Professional pronouncements

Several professional auditing standard-setters have considered the impact of IFR on auditor
responsibilities. This section briefly overviews the relevant auditing pronouncements. As will
become evident, the degree to which individual standard-setters attribute IFR-related responsibil-
ities to auditors largely depends on their assessment of the applicability of their equivalent to ISA
720 The Auditor’s Responsibilities Relating to Other Information in Documents Containing
Audited Financial Statements to such contexts. While not requiring auditors to audit ‘other infor-
mation’, ISA 720 requires the auditor to read information in documents containing audited finan-
cial statements, such as corporate annual reports, in order to identify material inconsistencies (ISA
720, para 1).
Despite ISA 720 excluding information contained on the reporting entity’s website from its
definition of ‘other information’ (para A4), IFR-related audit pronouncements issued in NZ,
the UK, and Australia implicitly or explicitly suggest that the requirements of ISA 720 extend
to situations involving IFR, thereby giving rise to specific IFR-related audit responsibilities. Of
the pronouncements issued by these three jurisdictions, NZ’s AGS 1003 Audit Issues Relating
to the Electronic Presentation of Financial Statements and Related Auditor’s Reports is the
most comprehensive. It was issued by the New Zealand’s External Reporting Board (XRB) in
July 2011, but is ostensibly the same guidance as the original AGS 1003 published by the
New Zealand Institute of Chartered Accountants (NZICA) in 2004. Among other things, it
suggests auditors examine the final electronic financial statements immediately before and after
online publication for consistency with the audited version of the financial statements and with
other information on the website. AGS 1003 covers all the substantive matters dealt with in
the Australian and UK promulgations and additionally includes reference to such issues as the
potential need for the involvement of IT specialists (para 25), and consideration of the need for
cryptographic techniques in relation to the auditor’s report signature (para 19, Appendix 4). It
further suggests a more comprehensive set of potential inclusions in the auditor’s report accom-
panying electronically presented financial statements.
Unlike NZ and Australia, the UK’s FRC has accommodated the audit issues associated with
IFR in an appendix to ISA(UK&I) 720 Section A The Auditor’s Responsibilities Relating to Other
Information in Documents Containing Audited Financial Statements (ISA(UK&I) 720A). The
Appendix, titled ‘Electronic Publication of the Auditor’s Report’, is a considerably abridged
version of the document it replaced, Bulletin 2001/1. It is silent on the auditor’s responsibilities
with regard to the financial statements and auditor’s report subsequent to publication on an
entity’s website and contains no reference to the implications of IFR on the engagement letter
or the need for specific written representations. It does, however, suggest that the auditor’s
report may need to accommodate references to several matters, including the nationality of the
accounting and auditing standards, in addition to sufficient address information to permit
readers to ascertain the country in which the auditor is located. No further amendments to the stan-
dard auditor’s report are suggested by the Appendix. Australia’s guidance statement GS 006 Elec-
tronic Publication of the Auditor’s Report replaced AGS 1050 in December 2007 and lies
somewhere between the UK and NZ promulgations in terms of the scope of its recommended
practices.
Interestingly, all three guidance documents assert that the principles underlying ISA 720
extend to the issue of ‘inappropriate association’. It is suggested that the auditor needs to establish
that the auditor’s report is not inappropriately associated with other information, and, as a conse-
quence, the auditor should ensure ‘ . . . that audited information is clearly distinguished from other
information in a manner appropriate to the electronic format used’ (AGS 1003, para 33).
In stark contrast to the aforementioned standard-setters, US standard-setters appear to have
taken the view that auditors of US publicly listed companies have no responsibility for reading
information on their clients’ websites or for considering the consistency of other information
on websites with the audited financial statements. This view is based on an interpretation of
the US equivalent to ISA 720, AU Section 550 Other Information in Documents Containing
Audited Financial Statements. AU Section 9550 Other Information in Documents Containing
Audited Financial Statements: Auditing Interpretations of Section 550 argues that corporate web-
sites are not ‘documents’, rather they are deemed to be a means of disseminating information.
ISA 720 is currently being revised by the International Auditing and Assurance Standards
Board (IAASB) and the outcome of this project is likely to have significant ramifications for
several of the aforementioned pronouncements. As mentioned earlier, the existing ISA 720
excludes information contained on the reporting entity’s website from its definition of ‘other
information’. Early in the project, the IAASB and its Taskforce considered whether ISA 720
ought to be expanded in scope to address electronic distribution issues. However, it was con-
cluded that the existing scope of ISA 720 ought to be retained. The Taskforce justified its position
by noting that auditors’ knowledge of their clients’ controls over posting and amendment of infor-
mation on their websites is likely to be limited; information can be altered easily without the audi-
tor’s knowledge; and that continuous monitoring by auditors of their clients’ websites is
impractical. Furthermore, requiring auditors to review other information on their clients’ websites
when audited annual reports are initially uploaded
. . . may result in widening the expectation gap in terms of the pubic forming the perception that the
auditor’s responsibility in relation to such information extends beyond that which is intended by the
ISAs. (Wong 2010, p. 14, emphasis added)
With respect to the issue of ‘inappropriate association’ between the auditor and other docu-
ments or information disseminated by the reporting entity, the IAASB’s Taskforce has taken
the view that such issues are beyond the scope and focus of ISA 720 and would be better
addressed in a new pronouncement dealing solely with issues of association (Wong 2011).
In summary, this review of current auditing pronouncements has highlighted wide variation in
recommended practice between major standard-setters internationally. Overall, there has been
little change in the position of audit standard-setters since the reviews by Lymer and Debreceny
(2003) and Fisher et al. (2004), but recent changes being mooted by the IAASB will lead to a
rethink by audit standard-setters of the scope and nature of extant pronouncements associated
with IFR.
2.4. IFR, auditors and the expectations gap

Developments in the auditor’s external environment over the past 25 years have played a signifi-
cant role in altering the magnitude and nature of the audit expectations gap. An extensive study by
Porter et al. (2012b) found a range of emerging factors, coupled with marked increases in
society’s related expectations of auditors, as contributing to changes in the expectations – perform-
ance gap in NZ between 1989 and 2008 and in the UK between 1999 and 2008. The emerging
factors included the development of corporate governance requirements, increasing societal
awareness of the social and environmental issues, and of particular relevance to this study, the
emergence of the Internet as an efficient means of corporate communication. Two of the 53
actual or potential audit responsibilities examined in their NZ survey, and 2 of the 55 responsi-
bilities in their UK survey, related to potential roles auditors could play in relation to IFR.
These corresponded with auditors examining and reporting on (in an attached audit report) the
reliability of: (a) information provided on the Internet by the client in its audited financial state-
ments; and (b) information (other than in its audited financial statements) provided on the Internet
by the client. The researchers found that both had contributed to the gap in NZ and in the UK in
2008.
These results support the findings of the review of relevant professional pronouncements
and auditing literature in the preceding sections of this paper. This review revealed variability
in actual audit practices in connection with IFR, together with deficiencies, inconsistencies,
and ambiguities in relevant professional pronouncements. Overall, the picture that emerged
was one of rapidly evolving technology and reporting practices yet slow-changing auditing
pronouncements and practices – conditions conducive to the emergence of an audit
‘expectations gap’ between users and preparers of online reports and the auditors of those
reports.
No prior empirical study, however, has comprehensively examined the actual and potential
auditor IFR-related responsibilities underlying such a gap. This is important for several
reasons. First, adequate empirical evidence needs to be obtained to verify the gap’s existence
and to determine its composition. While the work of Porter et al. (2012a, 2012b) was instructive
in linking auditors’ IFR-related responsibilities to the expectations gap, their study was broadly
focussed and only considered two of many possible responsibilities. Furthermore, their study
failed to consider existing IFR-related responsibilities. Secondly, greater insight into the compo-
sition of the gap will provide an effective basis for determining appropriate corrective measures.
Finally, delineating the composition and structure of the gap will provide a benchmark for future
studies to trace movements of specific responsibilities in relation to the gap. Porter et al. (2012b),
for instance, discerned a process by which emerging issues frequently initially enter the expec-
tations gap as part of the ‘reasonableness gap’. Over time, however, elements of the cost –
benefit equation become clearer, leading to issues ceasing to form part of the expectations gap,
moving from the reasonableness to the deficient standards component of the gap, or becoming
actual responsibilities of auditors through changes in legislation or standards.
On the basis of the foregoing discussion, the study’s two research questions are as follows:
RQ1: Are there differences between auditors and audit stakeholders in perceptions of auditors’ exist-
ing responsibilities in relation to IFR?
RQ2: Is there an ‘expectation –performance gap’ in relation to auditors’ responsibilities with respect
to IFR, and, if so, what is the nature and composition of that gap?
RQ1 is consistent with the ‘traditional’ conceptualisation of the expectations gap, that is, ‘ . . .
the difference between (1) what the public and other financial statement users perceive auditors’
responsibilities to be and (2) what auditors believe their responsibilities entail’ (McEnroe and
Martens 2001, p. 345). In contrast, RQ2 focuses on the audit ‘expectation – performance gap’
(Porter 1993) which considers society’s perceptions of auditors’ current performance and,
additionally, their perceptions about what auditors should be doing.
3. Research method
Data for the study were obtained using surveys of the following key stakeholder groups: auditors,
preparers, sophisticated users (analysts and brokers) and general shareholders. Survey methods
feature prominently in the expectations gap literature and ‘[a]s the basic concept of an expec-
tations gap concerns differences in opinions, the use of a questionnaire opinion survey has
some justification’ (Humphrey et al. 1993, p. 396). The survey was conducted in NZ. NZ has pre-
viously been used as a research setting in the expectations gap literature (Porter 1993, Porter and
Gowthorpe 2004, Porter et al. 2012a, 2012b) and has been studied from the perspective of audi-
tors’ responsibilities with respect to IFR (e.g. Fisher et al. 2004).
3.1. Survey instrument design

The survey instrument consisted of three main sections: (i) Part A included a series of questions
designed to elicit respondents’ views concerning auditors’ responsibilities in connection with
IFR; (ii) Part B consisted of two questions relating to respondents’ perceptions concerning
more general aspects of IFR; and (iii) Part C contained biographical questions, several of
which were tailored according to the nature of each particular respondent group. We now
provide more details regarding Parts A and B.
Part A presented respondents with a series of 13 assertions relating to the nature of auditors’
responsibilities in connection with IFR. This section of the survey was designed to ascertain
respondents’ opinions about auditors’ existing responsibilities, the standard of performance in ful-
filling these responsibilities, and the responsibilities that auditors should fulfil. The specific asser-
tions were as follows:
(1) The auditor should communicate with the management team or audit committee regard-
ing matters related to the electronic presentation of the audited financial report and audi-
tor’s report on the entity’s website.
(2) The auditor should ensure that audited information is clearly distinguished from other
financial information at the time the audited information is placed on the entity’s
website.
(3) The auditor should obtain representations from management that the auditor’s report is
not used inappropriately on the website.
(4) The auditor should obtain specific representations from management that the manage-
ment team has clearly differentiated between audited and unaudited information on
the company’s website.
(5) The auditor should ensure that the audited financial statements uploaded on the entity’s
website are the same as those audited by the auditor.
(6) The auditor should ensure that, if the auditor’s report on the full financial statements is
presented on the entity’s website, then the corresponding financial statements are also
provided in full.
(7) The auditor should ensure that there are no material inconsistencies between audited
information and any other information presented on the entity’s website at the time
the audited information is placed on the entity’s website.
(8) The auditor is responsible for examining the controls over the electronic presentation of
audited financial information on the entity’s website.
(9) The auditor should continually monitor the entity’s website to ensure that no inappropri-
ate modifications are made to the audited financial statements after they have been pub-
lished on the entity’s website.
(10) The auditor should continually monitor the entity’s website to ensure that no material
inconsistencies arise between audited information and any other information on the
entity’s website after the audited information is placed on the entity’s website.
(11) The auditor should provide assurance about all financial information appearing on the
entity’s website.
(12) The auditor should provide assurance about all non-financial information appearing on
the entity’s website.
(13) The auditor should ensure that the entity’s website does not inappropriately omit the
auditor’s report.
The assertions represent a sample of (salient) matters specifically referred to in audit pro-
nouncements (principally, NZ’s AGS 1003) as being responsibilities that auditors either ought
to be fulfilling (Assertions 1– 6) or, alternatively, ought not to be fulfilling (Assertions 8 – 12).
Whether Assertion 7 can be deemed to be a responsibility of the auditor is unclear – it is a respon-
sibility under AGS 1003, but arguably not so under ISA(NZ) 720. An additional assertion (Asser-
tion 13) was included which related to a matter highlighted in the literature as being a potential
concern in relation to auditors’ responsibilities.10
All respondent groups were asked to consider the 13 assertions except the shareholder group,
who were only presented with 8 assertions (Assertions 2, 5, 7 – 12). The decision to reduce the
number of assertions considered by the shareholder group was made in order to exclude matters
about which they were less likely to be familiar (such as management representation letters, etc.)
and to keep the survey to a manageable length with a view to maximising the response rate. A
similar practice was adopted by Porter (1993).
In a manner similar to Porter (1993), Porter and Gowthorpe (2004), and Porter et al. (2012a,
2012b), respondents were asked to consider three questions in relation to each assertion, namely:
(1) To what extent do you agree that it is an existing responsibility of the auditor?
(2) If it is believed to be an existing responsibility, how well is it performed by the auditor?
(3) To what extent do you agree that it should be a responsibility of the auditor?
All three questions were answered using a 5-point Likert scale11, with, in the case of questions
1 and 3, end points of Strongly Disagree (1) and Strongly Agree (5), and, in the case of question 2,
endpoints of Very Poorly (1) and Very Well (5). In relation to question 2, respondents were also
given the option of selecting Unable to Tell rather than scoring performance on the five-point
scale.12
To mitigate concerns associated with ordering effects, the ordering of assertions presented in
Part A of the survey instrument was mixed non-randomly. The final ordering did not vary between
respondent groups.
The two general questions in Part B of the survey sought respondents’ perceptions regarding
(a) whether online corporate reporting was starting to gain dominance as the primary means for
users to access financial statements and (b) how auditors’ reports should be presented when the
corresponding financial statements are online. Although the two questions were incidental to the
main purpose of the survey, the first question provided a rough gauge as to the respondents’
assessments of the overall significance of the general topic area.13
The survey instrument was reviewed by two accounting academics and four postgraduate stu-
dents who provided valuable feedback on the instrument concerning issues related to timing,
layout, wording, and clarity of instructions. After the instrument was revised, a web-based
version of the instrument was pilot tested on 30 undergraduate advanced auditing students.14
3.2. Sample selection and respondents

Details of the study’s sample are included in Table 1. Web-based versions of the survey instrument
were administered to the auditor and shareholder groups, while equivalent mailed surveys
(including postage paid return envelopes) were sent to the sophisticated user and preparer
groups. Data were collected over 2011 – 2012. A separate prize draw for book vouchers was
held for each of the four groups. Respondents were eligible if they completed and returned the
surveys within a stated time period.
Table 1. Details of survey respondents.

Preparers Sophisticated users
Auditors (CFOs) (analysts & brokers) Shareholders Total
Number surveyed 205 140 150 845 1340
Usable responses 73 31 20 122 246
Response rate (%) 35.6 22.1 13.3 14.4 18.4
Respondents as proportion of 29.7 12.6 8.1 49.6 –
total usable responses (%)
The auditor group consisted of auditors from two Big 4 firms and one national assurance pro-
vider in NZ. All three firms had listed company clients. Contact was made with senior figures in
each of the three firms. These individuals agreed to endorse and forward an email containing a
web link to the web-based version of the survey instrument to audit staff in selected offices of
their respective firms. In total, 205 auditors were sent an email, of which usable responses
were received from 73. Of these, 34.2% were at the junior/intermediate level, 11.0% were
audit seniors, 26.0% were managers, while 28.8% were partner level. A total of 90.4% indicated
that they had clients who present audited financial statements on corporate websites.
The preparer group consisted of CFOs, or equivalent, of NZ listed companies (i.e. companies
listed on the NZSX or NZAX exchanges). Details of these companies were obtained from the
NZX Corporate Research Database. This database identified 149 companies. After eliminating
CFOs who were CFOs of two or more listed companies, the sample of such companies was
reduced to 140. The NZX Corporate Research Database, corporate website or most recent
annual report of each of these companies was used to find the mailing address and identity of
the incumbent CFO. From an initial mail out of a postal version of the survey instrument and
one follow-up reminder, a total of 31 (22.1%) usable responses were received. A total of 97%
of CFO respondents indicated that their companies published their audited annual reports
online, and that they had done so for 5.9 years on average (SD ¼ 2.75 years). About 68% of
CFOs indicated that they had previously been an auditor and the average time since being an
auditor was 17.2 years (SD ¼ 4.64 years). Analysis using Mann – Whitney U tests (not reported)
showed that the responses of CFOs to the survey questions were not influenced by prior experi-
ence in the role of an auditor.
The sophisticated user group consisted of financial analysts and brokers who were identified
through extensive web searches of organisations known to employ such staff in NZ. As for the
survey of CFOs, a mailed survey was followed by a reminder letter. This netted 20 usable
responses, representing a relatively low response rate of 13.3% of the 150 initially surveyed.
The respondents indicated that 5%, 20%, and 75% of them accessed audited financial statements
directly from corporate websites rarely, sometimes, or often, respectively; while 5%, 15%, 80%
similarly accessed unaudited financial information rarely, sometimes, or often, respectively.
The New Zealand Shareholders Association (NZSA) provided access to its database for the
purpose of obtaining shareholder respondents. An office holder at the NZSA distributed an
email to the NZSA’s members containing a covering letter from the researchers and a web link
to a web-based version of the survey. Of the 845 shareholders contacted, usable responses
were received from 122, which represented a 14.4% response rate. In response to a question in
Part C of the survey, 26.7%, 44.2%, and 29.2% of shareholders rated their level of accounting
knowledge and/or experience as weak, satisfactory, or strong, respectively. Similarly, 48.8%,
38.8%, and 12.4% rated their auditing knowledge as weak, satisfactory, or strong, respectively.
While 36.4%, 41.3%, and 22.3% of shareholders considered that they accessed audited infor-
mation off corporate websites for investment purposes rarely, sometimes, or often, respectively,
24.6%, 43.4%, and 32.0% accessed non-audited information for the same purpose rarely, some-
times, or often, respectively.
Overall, the response rates were consistent with other surveys of similar groups. For instance,
Porter et al. (2012a) had usable responses ranging from 14% to 29% for their extensive surveys of
auditor and audit beneficiary groups in the UK and NZ.
Both the mailed and web-based survey responses were tested for non-response bias by stat-
istically comparing the responses of earlier survey respondents with those of later respondents
(Oppenheim 1992). This analysis revealed only isolated differences, suggesting that non-response
bias was not a concern for any of the respondent groups, irrespective of the mode of survey
administration.15
4. Results
The purpose of this paper is to provide evidence to address two research questions. RQ1 seeks to
determine whether the audit expectations gap (as traditionally conceptualised) has been extended
to auditors’ responsibilities in relation to IFR, while RQ2 considers the existence of an ‘expec-
tation – performance gap’ and the nature and composition of such a gap, should it be shown to
exist. The results were analysed primarily using non-parametric statistical analyses after analyses
using the one-sample Kolmogorov-Smirnov test indicated that the underlying distributions
were not normally distributed. Accordingly, overall between-group differences were first estab-
lished using Kruskal – Wallis one-way analysis of variance, followed up with Mann – Whitney
U tests for pairwise comparisons of the responses of auditors and each of the three non-auditor
groups.
In terms of knowledge of their existing responsibilities (pursuant to AGS 1003), Panel A of
Table 2 shows that auditors have mean scores greater than the scale midpoint of three (indicating
some level of agreement that the assertion is an existing responsibility) on four out of the seven
current responsibilities. However, additional analyses suggest that only two of these are statisti-
cally significantly greater than three (using the upper-tailed one-sample Wilcoxon Signed Rank
Test). These are: Assertion 1 ‘Communicate with management re electronic presentation’ (p ,
0.001) and Assertion 3 ‘Management representations re no inappropriate auditor’s report use’
(p , 0.001). This suggests limited acknowledgement of existing responsibilities, which could
either indicate a knowledge gap, or, alternatively, that auditors do not believe that responsibilities
suggested by guidance statements (as opposed to auditing standards) represent actual
responsibilities.
As noted in earlier sections, traditional conceptualisations of the expectations gap focus on
differences between auditors and audit stakeholders concerning perceptions of auditors’ existing
responsibilities. The survey-based literature on the expectations gap has usually established the
presence of this gap by identifying differences in the responses of auditors and other respondents
in relation to perceptions of lists of items representing both actual and potential responsibilities of
auditors (e.g. Monroe and Woodliff 1993, Best et al. 2001, McEnroe and Martens 2001, Fadzly
and Ahmad 2004, Dixon et al. 2006). Respondents have typically been asked to consider whether
the responsibilities are existing requirements of auditors using either Likert or semantic differen-
tial scales. In this study, the existence of an expectations gap is evident by examining the between-
group differences in responses of auditors and users (sophisticated users and shareholders) to the
questions which asked respondents to indicate the extent to which an assertion is an existing
responsibility of the auditor.
Table 2 indicates that shareholders had significantly higher expectations of auditors’ existing
responsibilities than auditors on all eight assertions that shareholders were asked to consider. Of
these eight, further analysis indicates that shareholders’ responses to 4 assertions are significantly
greater than the midpoint of three (specifically, Assertions 2 (p , 0.001), 5 (p , 0.001), 7 (p ,
0.05), and 8 (p , 0.01)). Turning to sophisticated users, Table 2 indicates that responses to 7 of
the 13 assertions considered by this respondent group were significantly different from those of
auditors (i.e. Assertions 1, 3, 8 – 12). However, not all of these represented higher expectations
than auditors. Responses by sophisticated users were significantly lower than auditors for Asser-
tions 1 and 3. Interestingly, both of these related to responsibilities currently required of auditors
(i.e. those found in Panel A). Further analysis of those assertions for which sophisticated users had
higher expectations than auditors (i.e. Assertions 8 – 12) indicates that none were significantly
greater than the scale midpoint of three. In summary, there is evidence that the expectations of
users concerning auditors’ existing IFR-related responsibilities are generally higher than those
of auditors and that this is principally the case for the shareholder user group. Consequently, it
Table 2. Perceptions about the extent of auditors’ existing IFR-related responsibilities.

Respondent groupa
All non- Sophisticated
Auditors auditors Preparers users Shareholders Kruskal–
(n ¼ 73) (n ¼ 173) (n ¼ 31) (n ¼ 20) (n ¼ 122) Wallis
Assertion Mean Mean Mean Mean Mean Chi2
Panel A: Responsibilities currently included in pronouncements
1. Communicate with 3.71 3.29b 3.39 3.15b na 6.97c
management re electronic
presentation
2. Ensure audited information 2.95 3.39b 2.97 2.95 3.57d 14.19e
distinguished from other
financial information
3. Management 3.90 3.37f 3.58b 3.05f na 15.56g
representations re no
inappropriate auditor’s
report use
4. Management 3.06 3.04 3.00 3.10 na 0.09
representations re
differentiation of
information
5. Ensure uploaded financial 3.06 3.66d 3.45 3.35 3.76f 14.37e
statements same as audited
version
6. Ensure full financial 3.00 3.37 3.32 3.45 na 2.73
statements accompany
auditor’s report
7. Ensure no material 2.55 3.01d 2.42 2.50 3.25f 20.09g
inconsistency between
audited and other
information
Panel B: Responsibilities not currently in pronouncements
8. Examine controls over IFR 2.04 3.14f 2.74d 2.70d 3.31f 46.06e
f
9. Continually monitor 1.74 2.86 2.36d 2.55d 3.04f 49.46g
website to ensure no
inappropriate modification
10. Continually monitor 1.55 2.61f 2.13d 2.30f 2.78f 59.57g
material inconsistencies
11. Provide assurance on all 1.49 2.58f 1.71 2.40f 2.83f 68.39g
financial information on
website
12. Provide assurance on all 1.40 1.94f 1.42 1.85b 2.09f 41.19g
non-financial information
on website
13. Ensure no inappropriate 2.75 3.16 3.13 3.20 na 3.26
omission of auditor’s report
a
Mean responses relate to the questions which asked whether particular assertions are existing responsibilities of the
auditor; 1 ¼ Strongly Disagree, 5 ¼ Strongly Agree.
b
Mann– Whitney U test indicates mean rank significantly different from Auditors’ mean rank at p , 0.05.
c
Kruskal–Wallis Chi2 significantly different from 0 at p , 0.05.
d
e
f
g
Kruskal– Wallis Chi2 significantly different from 0 at p , 0.001.
can be concluded that there does appear to be an expectations gap concerning auditors’ IFR-
related responsibilities, thereby answering RQ1 in the affirmative.
RQ2 focused on the ‘expectation – performance’ gap, as conceptualised by Porter (1993). As
noted in Section 2, this gap consists of ‘deficient performance’ and ‘deficient standards’ com-
ponents (both of which make up the ‘performance gap’), and the ‘reasonableness gap’. Deficient
performance of existing responsibilities will be considered first.
Table 3 provides the data relevant to an assessment of the ‘deficient performance’ gap. It
reports responses to the questions which considered how well auditors perform their existing
IFR-related responsibilities (i.e. Assertions 1 – 7). Porter argued that this gap should be assessed
by analysing the opinions expressed by non-auditor respondents taken as a whole. Accordingly, it
is evident that two assertions, 2 and 7, have mean responses below the scale midpoint of three.
Table 3. Perceptions about the performance of auditors’ existing IFR-related responsibilities: Deficient
performance.
Respondent groupa
All non- Sophisticated Kruskal–
Auditors auditors Preparers users Shareholders Wallis
Assertionb Mean Mean Mean Mean Mean Chi2
1. Communicate with 3.75 3.13 3.07 3.50 na 4.56
management re electronic
presentation
2. Ensure audited 3.89 2.96c 3.09d 3.40 2.84e 13.39f
information distinguished
from other financial
information
3. Management representations 3.98 3.42d 3.41d 3.50 na 6.56g
re no inappropriate auditor’s
report use
4. Management representations 3.35 3.29 3.36 3.00 na 0.34
re differentiation of
information
5. Ensure uploaded financial 3.88 3.16d 3.44 3.33 2.96e 8.07g
statements same as audited
version
6. Ensure full financial 3.96 3.56 3.54 3.60 na 2.03
statements accompany
auditor’s report
7. Ensure no material 3.40 2.70h 3.00 3.00 2.59h 7.41
inconsistency between
audited and other
information
a
Mean responses relate to questions which asked how well particular assertions are performed by the auditor; 1 ¼ Very
Poorly, 5 ¼ Very Well.
b
‘Deficient performance’ assertions (responsibilities currently included in pronouncements but perceived to be performed
poorly by non-auditors) shown in bold.
c
d
e
f
g
h
Lower-tailed one-sample Wilcoxon Signed Rank Test indicates respondent group’s median response to be lower than the
scale midpoint of three at p , 0.05.
However, only Assertion 7 is statistically significantly lower than three. Scores lower than 3 are
consistent with assessments of poor performance by auditors. Assertion 7 relates to auditors
responsibility to ensure that there are no material inconsistencies between audited information
and any other information presented on the entity’s website at the time the audited information
is placed on the entity’s website. Furthermore, the dissatisfaction in auditors’ performance
appears to principally arise from the shareholder group.
Deficient standards represent responsibilities that auditors might reasonably be expected to
accept on a cost – benefit basis. Porter (1993) argued that in the absence of a formal cost –
benefit analysis, a satisfactory substitute criterion for determining those duties reasonably
expected of auditors is to look for agreement between auditees (preparers) and financial commu-
nity users (e.g. analysts, brokers, bankers, etc.) that a given responsibility ought to be an auditor
responsibility. Accordingly, in this study, such responsibilities are determined by looking at those
that are currently not referred to in audit pronouncements (i.e. Assertions 8 – 13) and identifying
instances where both preparers and sophisticated users have mean responses above the scale mid-
point of three on the questions which asked whether they should be auditor responsibilities.
Table 4 summarises the results of this analysis and reveals that only one responsibility, Assertion
13, is rated statistically significantly higher than three (indicating agreement that the assertion
should be an auditor’s responsibility) by both preparers (mean ¼ 3.52) and sophisticated users
(mean ¼ 3.75). Assertion 13 relates to a responsibility for auditors to ensure that there is no inap-
propriate omission of an auditor’s report on corporate websites.
Assertions contributing to the reasonableness gap were determined by identifying those that
are currently not referred to in audit pronouncements (i.e. Assertions 8– 13)) and then identifying
instances where an assertion fails to meet the previously mentioned cost – benefit criterion but is
still perceived by a user group (sophisticated users or shareholders) to be an assertion that ought to
be a responsibility of auditors (as indicated by responses above the scale midpoint of three on
responses to questions that asked whether they should be auditor responsibilities). Table 4 high-
lights four assertions meeting these criteria, that is, Assertions 8 – 11. All four are strongly sup-
ported by shareholders (as indicated by their statistically significant responses above the
midpoint of three). Only one of these, however, is also supported by sophisticated users – that
corresponding to Assertion 8. This assertion relates to auditors accepting a responsibility for
examining the controls over the electronic presentation of audited financial information on the
entity’s website. It is perhaps not surprising, however, that sophisticated users would not
support an extension of auditors’ responsibilities to continuously monitor corporate websites
(Assertions 9 and 10) and having them provide assurance on all financial information presented
on corporate websites (Assertion 11). Further analysis (not shown) shows that the responses of
shareholders were moderated by their level of accounting, and to a lesser extent, auditing knowl-
edge. Responses to five assertions (Assertions 8 – 12) in Table 4 were negatively correlated with
accounting knowledge and two (Assertions 9 and 11) with auditing knowledge.
5. Discussion
The results of this study have highlighted an expansion of the audit expectations gap, as tradition-
ally defined to the developing area of IFR. The study further finds that auditors are either unsure of
or reluctant to acknowledge many of their existing IFR-related responsibilities currently embodied
in auditing pronouncements. In contrast, audit beneficiaries recognise most of the auditor’s existing
responsibilities as existing responsibilities, and further, firmly believe they should continue to be
the responsibility of auditors. The current status of the IFR-related pronouncement may have
been a contributing factor underlying the auditors’ results. Audit responsibilities for IFR-related
issues in NZ are currently addressed in AGS 1003. Unlike auditing standards, guidance statements,
Table 4. Perceptions about the merits of auditors accepting responsibility for matters not currently included
in pronouncements: ‘Deficient standards’ and ‘Unreasonable expectations’.
Respondent Groupa
All non- Sophisticated Kruskal–
Auditors auditors Preparers users Shareholders Wallis
Assertionb Mean Mean Mean Mean Mean Chi2
8. Examine controls over 2.37 3.88c,d 2.90e 3.65c,f 4.18c,d 83.53g
IFR
9. Continually monitor 1.83 3.34c,d 2.48h 2.85c 3.63c,d 73.84i
inappropriate
modification
10. Continually monitor 1.78 3.13c 2.36e 2.50e 3.43c,d 70.28i
material
inconsistencies
11. Provide assurance on 1.60 3.04c 1.81 2.65c 3.41c,d 82.51i
all financial
information on website
12. Provide assurance on 1.37 2.20c 1.48 2.00h 2.41c 53.65i
all non-financial
information on website
13. Ensure no 3.11 3.61d 3.52f 3.75f na 6.09
inappropriate
omission of auditor’s
report
a
Mean responses relate to questions which asked whether particular assertions should be responsibilities of the auditor; 1
¼ Strongly Disagree, 5 ¼ Strongly Agree.
b
‘Deficient standard’ assertions (responsibilities not currently included in pronouncements but meet cost– benefit criterion
(i.e. considered desirable by both preparers and sophisticated users)) shown in bold. ‘Unreasonable expectations’
assertions (responsibilities not currently included in pronouncements but considered desirable by a user group but fail
cost –benefit criterion) shown in italics.
c
d
Upper-tailed one-sample Wilcoxon Signed Rank Test indicates respondent group’s median response to be higher than the
e
f
Upper-tailed one-sample Wilcoxon Signed Rank Test indicates respondent group’s median response to be higher than the
g
h
i
Kruskal– Wallis Chi2 significantly different to 0 at p , 0.001.
such as AGS 1003, are not considered mandatory by NZ’s XRB. The prior expectations gap litera-
ture has been critical of the potential for audit guidance to have limited operational influence and,
indeed, be used as a strategic expectations gap defence mechanism by the profession – that is, be
issued in order ‘ . . . to give an appearance of standardization and a rationalistic basis to the audit
experti[s]e, without necessarily providing sufficient details by which the nature of audit expertise
and audit performance can be gauged’ (Humphrey et al. 1992, p. 148). If upgrading the require-
ments of AGS 1003 to the status of a standard (either as a standalone standard or integrated into
other related standards) enhances auditors’ perceptions of their existing responsibilities with
respect to IFR, then such a move by the XRB would clearly be warranted. Failure to make auditor’s
IFR responsibilities mandatory provides the profession ‘wiggle room’ and the ability to renegotiate
their role and responsibilities more on their terms.
A further aim of this study was to also consider the IFR audit issues from a wider perspective
than permitted by analysis using the traditional view of the expectations gap. The study drew on
Porter (1993) who adopted an alternative formulation of the gap: the ‘expectation – performance
gap’. This view of the gap was considered by Porter (1993, p. 66) to provide ‘ . . . a more rational
and comprehensive approach toward narrowing the gap.’16 By encompassing deficient auditor
performance and deficient auditing pronouncements alongside unreasonable user expectations,
the alternative conceptualisation of the gap provides a ‘wide angle’ lens through which focus
may be trained on both the actions and inactions of the profession, in addition to factors less
directly controllable by the profession. Furthermore, as Porter (1993, p. 66) notes, ‘[o]nce a
duty is associated with a specific component of the [wider view of the] gap, appropriate corrective
action is almost self-evident’.
To the audit profession’s credit, only one responsibility was perceived to be significantly
poorly performed: the requirement in AGS 1003 to ensure no material inconsistencies between
audited information and any other information presented on the entity’s website at the time the
audited information is placed on the entity’s website. It is, however, no surprise that this particular
issue was perceived as it was. Ambiguity in pronouncements is likely to lead to divergent prac-
tices and, as discussed in Section 2, there is considerable ambiguity surrounding the auditor’s
responsibilities in relation to ‘other information’. AGS 1003 suggests that ISA(NZ) 720
applies in this situation, yet ISA(NZ) 720 currently excludes information on websites as being
‘other information’. ISA 720 is being revised, but it seems that the IAASB believe that there is
little role for a future revision of the standard to deal with matters relating to the electronic pres-
entation of financial statements. It appears, then, that the NZ audit standard-setter needs to address
the ambiguity inherent in AGS 1003 in connection with the guidance statement’s articulation with
ISA(NZ) 720 if it is to mitigate perceptions of deficient performance.
The sole responsibility falling within the ‘deficient standards’ component of the performance
gap was also no surprise. Both preparers and sophisticated users believed that auditors should
accept responsibility for ensuring that there is no inappropriate omission of the auditor’s
report. Reflecting this concern, many instances of inappropriate omissions (often where there
is a going concern modification) have been found in studies, both within NZ and overseas
(e.g. Hussey et al. 1998, Robb 1999, Ettredge et al. 2000, Fisher et al. 2004).
Four potential responsibilities were found to be associated with unreasonable expectations on
the part of users in Table 4. One of these relates to the auditor examining controls over IFR, two
relate to auditors continuously monitoring the auditee’s website, and the last relates to the auditor
providing assurance over all financial information presented on the website. It is easy to under-
stand the reason for the last of these potential responsibilities failing the cost – benefit criterion.
Such an extension to auditors’ responsibilities would likely be viewed as too far removed from
the purpose of the audit and require a substantial increase in audit work. This result is consistent
with Porter et al. (2012a, p. 116), who found that requiring auditors to produce a separate report on
the reliability of other financial information presented by the company on the Internet was one of
many elements constituting the unreasonableness gap in the UK and in NZ in 2008. Requirements
for auditors to continually monitor their clients’ websites after audited financial statements have
been uploaded in order to identify (1) material inconsistencies with other information on the
website and (2) inappropriate modifications may also be seen as placing a significant additional
burden on auditors (and corresponding increase in audit cost) and would effectively mean that
auditor’s responsibilities were being extended well past the signing of the auditor’s report and
the subsequent issuance of the financial statements. In relation to hardcopy financial statements,
the only significant responsibility of auditors after audited financial statements have been issued is
for auditors to consider material subsequent events that come to their attention but which existed
prior to the signing of the auditor’s report (ISA(NZ) 560 Subsequent Events). The first of the four
‘unreasonable’ responsibilities (examining controls over IFR) may be viewed as being most
closely aligned with the auditor’s existing role. For that reason, perhaps, it was supported by
both sophisticated users and shareholders. It was only the responses of preparers that saw this
potential responsibility failing the cost – benefit criterion.
Several different responses are available to the profession in addressing responsibilities con-
tributing to the ‘reasonableness gap’. Educating the public has been the typical response of the
profession to such issues. Despite evidence of a link between education and the expectations
gap (Monroe and Woodliff 1993, 1994), this approach may be interpreted as being a defensive
and self-serving strategy (Humphrey et al. 1992, Sikka et al. 1998).17 Furthermore, as the
CICA (1988, p. 63) note, the actual efficacy of this response in practice is questionable. The
failure of the long-form auditor’s report to effectively address miscommunications is a case in
point. This report was introduced to specifically address communication issues between auditors
and readers of auditors’ reports, however, as Asare and Wright (2012, p. 197) recently conclude,
the ‘[f]indings of studies on whether the long form report has reduced communication gaps have
produced mixed results’. An alternative is for the profession to simply do nothing and wait for
users’ expectations to dampen down of their own volition. In reviewing the nature of the expec-
tations gap longitudinally, Porter et al. (2012b, p. 235) noted that as
‘emerging issues’ become more commonplace, society begins to recognise that the potential costs of
auditors performing some of the ‘newly expected’ responsibilities outweigh the potential benefits to
be derived therefrom, and these responsibilities are discarded from society’s expectations of auditors
and, thus, from the audit expectation gap.
A final approach involves the profession giving serious consideration (through detailed cost –
benefit analysis) to whether some common ground could be achieved through the voluntary (and
proactive) acceptance of greater responsibilities in the areas deemed to involve the least incremen-
tal cost and greatest benefit to society.
Current developments in corporate reporting practices, such as XBRL and Integrated Report-
ing (IR), are likely to exacerbate many of the issues raised in this study. XBRL assigns tags to
corporate data to facilitate user-defined data extraction and intercompany comparisons. XBRL
tagging is now mandatory in the US for all SEC filings and many US companies make XBRL-
tagged data available on their websites alongside other financial information. There are many
issues associated with the use of XBRL that may have implications for the ‘expectations – per-
formance’ gap. Ongoing errors in XBRL filings have been noted in a number of recent studies
(Boritz and No 2005, Debreceny et al. 2010) perhaps suggesting a need for some level of assur-
ance. However, in most jurisdictions, the provision of assurance on such information is voluntary
and considered distinct from the annual financial statement audit.18 Consequently, whether or not
XBRL information has been examined by an assurance provider will vary considerably between
companies, as will the nature of any assurance-related engagement that may have taken place
(Alles and Gray 2012). In such an environment, users may be unsure of the assurance status of
XBRL information and simply assume some level of initial or ongoing audit association with
XBRL instance documents. Further issues may arise from the ability of users to access
XBRL-tagged data directly, that is, out of context of the originating financial statements. From
this perspective, the assurance status of extracted financial datum may not be obvious to users
(Boritz and No 2005). Furthermore, if a data element has been audited, it is not necessarily
clear that the auditor intended that the user should attach the same level of assurance to it as if
it were being viewed in the context of the originating audited financial statements (Plumlee
and Plumlee 2008).
IR is a relatively recent development in corporate reporting and may be viewed:
. . . as a means to present a more holistic view of corporate activity combining previously separate
elements of corporate reporting such as the sustainability/CSR report and the annual report, and to
communicate that information in a clearer, less complex, more material way. (Rowbottom and
Locke 2013, p. 2)
Significantly, supporters of the initiative view the Internet as an important enabler of IR (Eccles
and Krzus 2010, IIRC 2011). By integrating both audited and non-audited information into a
single ‘report’ on a corporate website, there would appear considerable scope for the boundaries
between such information to become blurred and for inconsistencies between such data to occur.
Both of these conditions may give rise to ‘expectations – performance’ gap issues consistent with
those highlighted earlier in this study.
The limitations of the study should be considered when interpreting the results. First, owing to
logistics and respondent availability, the study employed different sampling plans for obtaining
respondents and differing modes of survey delivery. This may have resulted in unintended
biases in responses to the questionnaire. Second, further bias could have been introduced by
the relatively low response rates for certain respondent groups. However, the response rates
were not inconsistent with those found in the prior literature and testing for non-response bias
did not suggest a concern with non-response bias. Third, the study was performed on respondents
from one financial reporting jurisdiction, NZ. Although NZ has adopted ISAs, there is a lack of
consistency with and between other jurisdictions with respect to their treatment of IFR and the
associated auditing issues. Furthermore, institutional arrangements for monitoring audit
performance may differ across jurisdictions, potentially leading to differential levels of perceived
auditor performance (Porter et al. 2012a). Future research is therefore warranted to determine
whether the results of the current study can be extrapolated to other jurisdictions. Finally, data
for the current study were obtained solely through the means of survey questionnaires. Qualitative
research approaches, such as those employing structured interviews and focus groups, may use-
fully complement the findings of this study. These approaches have already usefully been
employed in examining the wider audit expectations gap (e.g. Chowdhury and Innes 1998,
Gray et al. 2011).
6. Conclusion
Porter et al. (2012b, p. 235) claim ‘ . . . that, when significant changes occur in the corporate arena,
society expects auditors to accept a range of new responsibilities to help constrain corporate man-
agements from exploiting the changes to their, rather than society’s, benefit.’ IFR has profoundly
changed the corporate reporting landscape globally and this paper sought to examine the nature
and extent of the auditing profession’s response to this phenomenon and to ascertain the impact
that this response has had on the well-documented audit expectations gap. The study addressed
two specific research questions: (1) Are there differences between auditors and audit stakeholders
in perceptions of auditors’ existing responsibilities in relation to IFR? (2) Is there an ‘expec-
tation – performance gap’ in relation to auditors’ responsibilities with respect to IFR, and, if so,
what is the nature and composition of that gap?
A survey questionnaire approach was adopted, with an analysis of the prior literature and
existing auditing pronouncements informing the development of the research instrument. The
study was conducted in a NZ research setting with questionnaires completed by auditors and
members of three other groups with an interest in the financial reporting process, namely preparers
of publicly listed companies, sophisticated users (analysts and brokers) and shareholders.
The results confirm the existence of an expectations gap involving a disparity between the
perceptions of auditors and financial reporting users in relation to the former’s responsibilities
with respect to IFR. The principal pronouncement dealing with the auditor’s responsibilities in
connection with the electronic presentation of financial reports in NZ is seen to be a guidance
statement, AGS 1003. The study notes that the authoritative status of guidance statements,
such as AGS 1003, may contribute to a perpetuation of the gap. Further analysis using an ‘expec-
tation – performance gap’ framework identified specific responsibilities that contribute to deficient
performance, deficient standards and the reasonableness gap components of this gap and provided
a basis for recommendations for addressing the issues contributing to the gap.
If left unaddressed, many of the issues raised in this study are likely to grow in salience. The
use of IFR was seen by survey respondents as becoming the primary means of disseminating
audited financial information to stakeholders. The growing use of interactive multimedia features
in corporate websites and the shift in many jurisdictions towards the provision of XBRL financial
statements brings further challenges to the assurance profession. The results of this study clearly
support future research examining expectations gap implications of increasingly sophisticated
implementations of corporate reporting on the Internet. Further, research into potential ‘technol-
ogy solutions’ to the gap, including those related to continuous auditing, also appears warranted.
Acknowledgements
We thank the New Zealand Shareholders’ Association and the three participating audit firms for their invol-
vement in the study. Particular thanks go to all the auditors, chief financial officers of publicly listed com-
panies, investment analysts, share brokers, and shareholders who completed the relevant questionnaires. The
authors are grateful for feedback received from the discussant and participants at the Financial Reporting and
Business Communication Seventeenth Annual Conference, University of Bristol, 4 –5 July 2013. We also
gratefully acknowledge the efforts of Mark Clatworthy and two anonymous reviewers of the paper.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. Examples of such studies include Craven and Marston (1999) (UK), Pirchegger and Wagenhofer
(1999) (Austria and Germany), Marston and Polei (2004) (Germany), Bonsón and Escobar (2006)
(Eastern Europe), Trites (1999) (USA and Canada), Deller et al. (1999) (USA, UK, and Germany),
Hedlin (1999) (Sweden), Lymer et al. (1999), Gowthorpe and Amat (1999) (Spain), Fisher et al.
(2000) (NZ), Oyelere et al. (2003) (NZ), Laswad et al. (2005) (NZ Public Sector), Lodhia et al.
(2004) (Australia), Aly et al. (2010) (Egypt), and Xiao et al. (2004) (China).
2. Like many Commonwealth countries, NZ’s legal system (including company law) has been heavily
influenced by English law. With respect to financial reporting in NZ, a single independent Crown
entity has overall responsibility for issuing financial reporting standards and auditing and assurance
standards. These functions were transferred from the accounting profession (the New Zealand Institute
of Chartered Accountants (NZICA)) in July 2011. The New Zealand Auditing and Assurance Stan-
dards Board (NZAuASB), a sub-Board of the External Reporting Board (XRB), has delegated auth-
ority for preparing and issuing auditing and assurance standards. These standards are based on
International Auditing Standards (ISAs), further contributing to the generalisability of the study’s
findings.
3. These studies have included both developed nations, such as the UK (Lee 1970, Humphrey et al. 1993,
Porter and Gowthorpe 2004, Porter et al. 2012a), the USA (Epstein and Geiger 1994, Frank et al. 2001,
McEnroe and Martens 2001), Australia (Beck 1973, Monroe and Woodliff 1994), NZ (Porter 1993,
Porter and Gowthorpe 2004, Porter et al. 2012a), Germany (Ruhnke and Schmidt 2014), and Singapore
(Best et al. 2001); and developing nations, such as China (Lin and Chen 2004), Malaysia (Fadzly and
Ahmad 2004), Egypt (Dixon et al. 2006), Saudi Arabia (Haniffa and Hudaib 2007), and Lebanon
(Sidani 2007).
4. Such issues include the auditor’s responsibilities in connection with preventing, detecting, and report-
ing on fraud, illegal acts, and theft (e.g., Lee 1970, Humphrey et al. 1993, Monroe and Woodliff 1994,
Porter 1993, McEnroe and Martens 2001, Porter et al. 2012a, 2012b, Ruhnke and Schmidt 2014);
reporting on particular audit matters to third parties (Lee 1970, Humphrey et al. 1993, Porter 1993,
Haniffa and Hudaib 2007, Porter et al. 2012a); early warning of financial distress and level of assur-
ance provided concerning financial soundness (Beck 1973, Porter 1993, Porter et al. 2012a); maintain-
ing accounting records and preparing the financial statements (e.g., Monroe and Woodliff 1994, Best
et al. 2001, Porter et al. 2012a); and examining and reporting on internal controls or management effi-
ciency (e.g., Lee 1970, Best et al. 2001, Humphrey et al. 1993, Porter 1993, Porter et al. 2012a).
5. It is acknowledged that changes to the content of the auditor’s report pursuant to the IAASB’s new and
revised auditor reporting standards (which affect the audits of financial statements for periods ending
on or after 15 December 2016) may be viewed as representing somewhat more than an evolutionary
change.
6. For instance, the American Institute of Certified Public Accountants’ (AICPA) suite of ‘expectations
gap’ standards (Statements on Auditing Standards (SASs) 53–61) issued in 1988 and similar amend-
ments to audit requirements in other jurisdictions.
7. IFR was initially voluntarily undertaken by companies over and above their existing obligations to dis-
seminate printed annual reports to shareholders. Now, however, many jurisdictions permit companies
to discharge their statutory reporting obligations to members by providing unrestricted access to
audited annual reports which have been published on a website (so long as individual shareholders
are able to elect to receive a printed version instead). This form of electronic annual report distribution
is permitted in the UK (see Schedule 5 of the Companies Act 2006), NZ (see S209 of the Companies
Act 1993), and Australia (see S314(1AA) of the Corporations Act 2001). Online reporting has been
taken to the next level in the UK, where quoted companies are now required to make their annual
reports available on a website (see S430, Companies Act 2006). There is currently no similar require-
ment for NZ listed companies.
8. See Fisher et al. (2004) for a detailed discussion of the specific sub-issues underlying each of these
broader issues.
9. The potential risks associated with the blending of unaudited and audited information through the use
of hyperlinks have been highlighted in an experimental study by Hodge (2001).
10. The responsibility concerned checking to ensure that the auditor’s report is not inappropriately omitted
from accompanying corresponding audited financial statements on the Internet (Fisher et al. 2004).
11. Porter (1993), Porter and Gowthorpe (2004), and Porter et al. (2012a, 2012b) used ‘yes’, ‘no’, and ‘not
sure’ response options for questions 1 and 3, and ‘poorly’, ‘adequately’, ‘well’, and ‘unable to judge’
for question 2. Likert scales were adopted in this study as they are potentially amenable to a broader
range of statistical analyses and, importantly, provide respondents with a wider range of response
options.
12. ‘Unable to Tell’ responses were excluded from later statistical analyses.
13. Reponses to the first question in Part B indicated that respondents generally agreed with the statement
that that online corporate reporting was gaining dominance as the primary means for users to access
financial statements (mean ¼ 3.96, standard deviation (SD) ¼ 0.860, scale endpoints of Strongly Dis-
agree (1) and Strongly Agree (5)). There were no statistically significant differences between groups.
In relation to the second question in Part B, 86%, 30%, and 6% of respondents believed that the audi-
tor’s report should be an electronic document on the auditee’s website, auditor’s website, or third-party
website, respectively (Respondents were free to select more than one response for question 2, hence the
sum of percentages exceeds 100%).
14. Although the use of student surrogates in business research has been a controversial issue, several
recent studies in accounting have provided conditional support for the use of advanced accounting stu-
dents as surrogates for accounting practitioners (Liyanarachchi 2007, Liyanarachchi and Milne 2005,
Mortensen et al. 2012). In this study, however, students were primarily used for the purpose of identi-
fying issues with the research instrument, rather than for making inferences based on their responses.
15. Differences between early and late respondents were found on two responses of the auditor group, one
of CFO group, none of sophisticated user group, and three of the shareholders group, respectively. No
pattern to the differences was discernible.
16. Ruhnke and Schmidt (2014) also support the use of a broad conceptualisation of the gap in their recent
study of the expectations gap in Germany.
17. Indeed, a knowledge effect consistent with the potential role of education was observed in this study. It
will be recalled that shareholders’ ‘unreasonable’ expectations in Table 4 were found to be negatively
correlated with accounting, and to a lesser extent, auditing knowledge.
18. The voluntary nature of XBRL-related assurance engagements has been acknowledged in the pro-
nouncements of several professional bodies. In the UK, the Auditing Practices Board has issued Bul-
letin 2010/1 XBRL Tagging of Information in Audited Financial Statements – Guidance for Auditors
(2010), while in the US, the AICPA has issued Principles and Criteria for XBRL-Formatted Infor-
mation (2012) and Statement of Position (SOP) 13–2, Performing Agreed-Upon Procedures Engage-
ments that Address the Completeness, Mapping, Consistency, or Structure of XBRL-Formatted
Information (2013).
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Corporate reporting on the Internet and the

Richard T. Fisher & Samuel T. Naylor

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Corporate reporting on the Internet and the

RICHARD T. FISHERa∗ and SAMUEL T. NAYLORb

# 2015 Taylor & Francis

jurisdictions internationally, including the UK and Australia.2 Furthermore, NZ has previously

Porter further divides the ‘performance gap’ into a:

2.2. IFR and the auditor

2.3. Professional pronouncements

2.4. IFR, auditors and the expectations gap

3.1. Survey instrument design

3.2. Sample selection and respondents

Table 1. Details of survey respondents.

Table 2. Perceptions about the extent of auditors’ existing IFR-related responsibilities.

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