The Review Report: An Empirical Investigation

Abstract

A laboratory study was used to investigate two questions of relevance to the expectations gap: (1) what differences do the users of financial statements perceive between an audit and a review?, and (2) what impact does changing the format of the audit report from the short form wording used in the UK prior to September 1993 to an expanded version (based on the expanded US audit report) have on these perceptions? Results of investigating (1) indicate that users perceive a number of differences between the audit and the review. Results of investigating (2) demonstrate that expansion of the audit report increases the number of differences perceived by users. The paper goes on to discuss the results in the context of the differences between an audit and a review suggested by IFAC guidelines. It was found that, in a number of respects, IFAC guidelines are inconsistent with user perceptions irrespective of the expansion of the audit report. The implication for audit policy is that any proposal to promote the use of reviews in the UK should address this inconsistency either by reappraising and refining IFAC's guidance on the review and/or by sharpening user perceptions of the review through careful wording of both the review and the audit reports.