Financial Statements: Auditors’ Perceptions of Responsibilities for Detecting and Reporting Clients’ Illegal Acts – Deficient Performance Gap and Causes

This study focuses on whether there is a deficient performance gap in the perception of responsibilities of financial statement auditors relating to detecting and reporting clients’ illegal acts in Sri Lanka and identifying the factors that create such gap. This study is significant due to the dearth of studies carried out in the area of auditors’ deficient performance gap in the Sri Lankan context. Since some unfavourable incidents have been recorded causing a deficient performance gap, the research is expected to explore the gap between the guidelines prescribed in the standards and the actual delivery of the auditors relating to clients’ illegal acts and the causes of such gaps. A quantitative research approach was followed and a questionnaire used to collect primary data regarding auditors’ perceptions of fraud detection. The relevant theoretical guideline followed for this research was ISA 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. The self–completion questionnaire consisted of generic data and 15 vignettes describing different illegal case studies of clients. The sample consisted of auditors working as public practitioners in audit firms and the analysis was conducted using inferential and descriptive research tools for capturing standard requirements and the auditors’ perceptions in a practical context.