Audit disaster futures: antidotes for the expectation gap?

The gap between what the public expects from the auditor and what the auditor perceives his or her role to be has exacerbated crises within the accounting profession. Perceived audit failures, followed by historically large law suits, have resulted in the alteration of accounting firms’ behavior. Ironically, the response has done little to alleviate the crisis in public confidence and has led to other concerns related to the auditor‐client relationship. Discusses issues associated with the expectation gap and posits that the profession’s efforts to educate users as to the nature of the audit process is a necessary, but insufficient, response. A two‐part strategy is proposed to effect structural change of the auditor‐client environment. Part one of the strategy calls for greater involvement of regulators in selecting the external auditor and requiring auditor rotation. Part two of the strategy proposes market‐based instruments, audit failure permits and audit disaster futures, to deal with remaining audit risk.