Brydon and the audit gap: Expectations, definitions and fraud

Brydon and the audit gap: Expectations, definitions and fraud

Sir Donald Brydon’s report into the quality and effectiveness of audit was published at the end of 2019, and in it, Brydon tackles the issues of the audit expectation gap and the issues it causes. In this article, we look at some of his key recommendations and observations made in the report.

Brydon and the audit gap: Expectations, definitions and fraud

“It would not be possible to write this Report without an explicit mention to what many call the ‘expectation gap,’” wrote Sir Donald Brydon in his long-awaited report into The quality and effectiveness of audit, published on 18th December 2019. 

Defined in a variety of ways over the years, the expectation gap generally refers to the difference between a gap in public perception, with the Association of Chartered Certified Accountants (ACCA) defining it as: “the difference between what the public expects from the auditing profession and what the auditing profession actually provides.” 

But Brydon states in his report that there are other gaps. A performance gap, a knowledge gap, an evolution gap, a quality gap, a misperception gap and a methodology gap. He also writes that an education gap has been observed, as has a delivery gap.  

Some feel that the expectation gap is too convenient for auditors, and that the delivery gap is a more suitable term. He directly cites a submission he received as part of the review process from Sarasin & Partners, that said: “Auditors like to highlight an ‘expectations gap’, which refers to the fact that the public misunderstands the auditor’s role, and worse still overestimates what auditors can do. 

“In our view, this characterisation is not just self-serving, but flawed. The problem is not one of expectations, rather we have a grave ‘delivery gap’ when it comes to audit.” 

While he acknowledges that these gaps stem from the expectation gap, Brydon demonstrates that the problem he is looking to address is more far-reaching than a gap in expectation. 

In Brydon’s view, the expectation gap is a distraction, and he says that “either audit is helping to reinforce deserved confidence in business or it is not”, and to close the expectation gap, or any other gap he references, there must be a more understandable framework within which audit is delivered.

Brydon review calls for ‘urgent reform’
Sir Donald Brydon

Brydon calls for a new definition 

One of Brydon’s key recommendations for the UK’s new audit regulator – the Audit, Reporting and Governance Authority (ARGA) which is set to replace the current Financial Reporting Council (FRC) – is to work with the Plain English Campaign to “produce appropriately concise guide to audit, explaining clearly what the different elements of an audit report mean as redefined in this Report and what, just as importantly, they do not mean.” 

Another is to rethink and redefine the concept of audit, so that there is no confusion over what is expected from auditors. Brydon recommends that ARGA endorses and adopts the following statement with regards to statutory audit, and that is should also be enshrined in the Companies Act:  

“The purpose of an audit is to help establish and maintain deserved confidence in a company, in its directors and in the information for which they have responsibility to report, including the financial statements.”  

He reinforces the fact that the board are primarily responsible for maintaining confidence in a company, but a theme running throughout the report is the importance of audit as a public interest function in order to ensure that the public and stakeholders can trust the process.

Widespread confusion

Brydon says that there is a widespread confusion over the terms assurance, audit and statutory audit, which he says is due to the structure of statutory audit and its focus on financial statements. 

In order to achieve its newly defined role, audit would and those that carry it out should have access to, and take into consideration, other information in addition to financial statements, which would still remain at the core of the practice. 

He writes that he feels that audit should therefore not be a task limited to accountants, or just part of the accountancy profession, as it should also deal with information away from financial statements. He says that today’s statutory auditors, as we understand them, should be given a new name to reflect this, such as “financial statement auditors”. 

The report cites Michael Power, an author who writes on accountancy and audit, who wrote: “The idea of audit, consisting of some very general and highly idealized elements, is appealed to and used in a wide variety of policy contexts which tend to assume its capabilities and effectiveness. 

“The rise of auditing is as much about the cultural and economic authority granted to people who call themselves auditors as it is about what exactly these people do. Indeed, we know that the people we call auditors (and inspectors) actually do many different things. 

“Calling certain activities ‘audits’ places them within a different field of social and economic relations and expectations as compared with calling them ‘assessments’ or ‘evaluations’. Indeed, by labelling activities as audits, it becomes possible for them to acquire the idealized characteristics of audit over time.” 

Clarification of the definition and these terms, Brydon argues, will ensure that there is no misunderstanding over the role of an auditor, and the public would have a clearer understanding of what to expect from the audit process. 


As the UK’s audit industry has come under increasing scrutiny, which sparked Brydon’s review and two others previous to it, there have been some who have said they do not believe it is the auditor’s responsibility to detect fraud.  

Harry Goddard, CEO of Deloitte Ireland, expressed this view as recently as October 2019, when he said: “Statutory auditors, working essentially to a 175-year-old model and a set of responsibilities laid down in law, are not fraud investigators.” Brydon disagrees. 

He writes that the International Standard for Auditing – ISA (UK) 240 – is ambiguous as to whether auditors are expected to look for fraud, stemming from the standard stating that directors and management have primary responsibility for preventing and detecting fraud. 

It also states that an auditor is less likely to find fraud due to sophisticated efforts made to hide it, and that there is a higher risk of not detecting management fraud due to management’s ability to manipulate records. 

Brydon writes: “It is consequently understandable that there is both confusion and a gap between the reality and the expectations of performance of auditors in this area. If an auditor is giving an unmodified opinion, then he or she is stating effectively that they have obtained a ‘high level’ of assurance that the financial statements are ‘true and fair’ or ‘presented fairly in all material respects’.  

“But some would ask: how can this be so, if there has been a material fraud that the auditor has failed to detect? Relying on users fully understanding that auditors may have done enough work to reach a reasonable expectation of the financial statements being free of material misstatement is not a satisfactory answer.” 

Referencing PwC’s future of audit report, Brydon says that there is demand from investors for greater detail about the risks of fraud, with a “substantial majority of investors in favour of expanding the scope of audit” to include detecting fraud.  

He notes that the PwC report also says that there is scope for auditors to utilise new technology to enable them to identify fraudulent activities. 

Brydon’s recommendation to ARGA on the matter of fraud and the expectation of the auditor is: “In order to dispel the current confusion, I recommend that ARGA amends ISA (UK) 240 to make clear that it is the obligation of an auditor to endeavour to detect material fraud in all reasonable ways.” 

While Brydon’s recommendations would have quite drastic implications for the UK’s audit industry, many have welcomed the report (see our full coverage here). The ball is now in the government’s court as to whether the recommendations are implemented. 


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