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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

Author

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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
    Department of Accounting & Information Systems, Jagannath University, Dhaka 1100, Bangladesh)

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.

Suggested Citation

  • Fengju Xu & Taslima Akther, 2019. "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," Sustainability, MDPI, vol. 11(20), pages 1-21, October.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:20:p:5798-:d:278109
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    2. Abdul Samad Kakar & Roselina Ahmad Saufi & Babin Dhas Devadhasan & Natanya Meyer & Seetharampalayam Chettiannan Vetrivel & Róbert Magda, 2021. "The Mediating Role of Person-Job Fit between Work-Life Balance (WLB) Practices and Academic Turnover Intentions in India’s Higher Educational Institutions," Sustainability, MDPI, vol. 13(19), pages 1-13, September.

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