The expectations gap related to shareholders' beliefs about recovery of losses on investments serves as a deterrent to lawsuits filed against audit firms.

Question

Quizplus · Accepted Answer

The expectations gap refers to the difference between what the public thinks auditors are responsible for and what they are actually responsible for. One aspect of this gap is that shareholders may mistakenly believe that audit firms will compensate them for losses on their investments, when in reality, audit firms are not responsible for investment losses. This misunderstanding can make it more difficult for shareholders to successfully pursue lawsuits against audit firms, as it requires them to prove that the audit firm was negligent in performing their audit duties, rather than just showing that they suffered investment losses.

The Expectations Gap Related to Shareholders' Beliefs About Recovery of Losses