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AUDITING an international approach bahram soltani

An International Approach

Bahram Soltani

The business world is changing rapidly, but recent corporate failures and scandals have
demonstrated, in dramatic fashion, that auditing is lagging behind. Financial markets need,
now more than ever, reliable auditing that delivers high quality information. For economies to
operate effectively, investors need control over company executives.
Auditing: An International Approach treats auditing as a whole discipline – the theory and the
practice – rather than discussing only auditing techniques. This approach raises the essential
question of what auditing ‘ought to be’ and how it should keep pace with change. The book
discusses auditing concepts for a changing environment and how auditing is responding to
public expectations. It analyzes the role of external auditors today as a vital part of decision
making in the market economy and the need to expand their role beyond traditional financial
statement audits.

Features
The major feature of the book is its coverage of four fundamental areas in auditing: international
issues including international standards, theoretical as well as practical aspects of auditing,
major research work in auditing, and multidisciplinary topics. Unique in its extensive coverage
of international, theoretical and multidisciplinary topics, the book aims at providing a clear

understanding of the evolution of auditing in a changing environment. Each chapter includes:









Learning objectives, end-of-chapter summaries and explanations of key terms to
reinforce learning.
Summaries of key topics on almost every page.
Extensive references to guide further reading, research work and advanced studies.
End-of-chapter review and discussion questions to allow the students and other users to
test their learning and to facilitate classroom discussion.
An extensive glossary.
Up-to-date citations of key regulators and scholars who specialize in different areas of auditing.
Audience
The book has been created for advanced auditing and accounting courses (and businessrelated degrees) at upper undergraduate and post-graduate levels. With its extensive coverage
of auditing and assurance services in today’s uncertain business environment, the book should
also be of interest to audit professionals, corporate managers, regulatory bodies and
researchers.
Bahram Soltani is Associate Professor of Accounting and Finance at the University of
Paris I-Panthéon Sorbonne.

An International Approach

Most importantly, the book presents external auditing in a new way, with a focus on
fundamental, theoretical issues pertaining to the framework and conceptual structure of
auditing on a global scale. This is balanced with a thorough and careful consideration of
audit practices in the new millennium.

Auditing

Auditing

Soltani

Bahram Soltani



Auditing

An International Approach
an imprint of

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AUDITING


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We work with leading authors to develop the
strongest educational materials in business and
finance, bringing cutting-edge thinking and best
learning practice to a global market.
Under a range of well-known imprints, including
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AUDITING:
An International Approach

Bahram Soltani


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Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearsoned.co.uk
First published 2007
© Pearson Education Limited 2007
The right of Bahram Soltani to be identified as author of this work have been asserted
by him in accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without either the prior written permission of the
publisher or a licence permitting restricted copying in the United Kingdom issued by the
Copyright Licensing Agency Ltd, Saffron House, 6-10 Kirby Street, London EC1N 8TS.
ISBN 978-0-273-65773-6
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for this book is available from the Library of Congress
10
11

9 8 7 6 5 4 3
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2

1

Typeset in 10.5/12.5pt Minion by 35
Printed by Ashford Colour Press Ltd., Gosport
The publisher’s policy is to use paper manufactured from sustainable forests.


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This book is dedicated to my wife Flora and my son Arshan.


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CONTENTS

Brief Contents

List of Figures
Preface
Acknowledgements
About the Author

xix
xxii
xxv
xxviii

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

1
28
66
92
126
159
184
215
242
279
301
336
387
416

16
17
18
19

An Introduction to Auditing and Assurance
Demand for and Supply of External Audit Services
Auditing, Organization and Governance
The Audit Committee, Internal and External Auditing
International Auditing and Assurance Services
Auditing in the European Context
Auditor Independence and Professional Ethics: International Issues
Audit Risk, Materiality and Business Risk Management
Audit Sampling Techniques
Evidence and Decision Making in Auditing
Internal Control over Financial Reporting and IT Environment
Audit Reporting
Information Technology and Auditing
Continuous Auditing and Continuous Reporting
Quality Control and Oversight Systems in Auditing: International
Issues
Auditor Liability in a Changing Environment
The Independent Auditor, Stock Markets and Lending Decisions
Corporate Fraud, Corporate Scandals and External Auditing
Auditing: Looking Ahead

Glossary
Index

442
471
496
532
577
609
634

vii


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Contents

List of Figures
Preface
Acknowledgements
About the Author

1 An Introduction to Auditing and Assurance
Learning objectives
Introduction
Questions about the critical role of auditors
The nature and objectives of auditing
Recent changes in the audit environment
A theoretical approach to auditing
Debating the historical perspective of auditing concepts
The demand for assurance services: an economic explanation
Attestation services
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

2 Demand for and Supply of External Audit Services
Learning objectives
Introduction
Debating audit expectations
Demand and supply of audit
Parties demanding financial statement information
The problem of ‘information asymmetry’
The economics of information
Supply of financial statement information (mandatory and voluntary disclosures)
Factors affecting corporate financial disclosure
External auditors and supply and demand of financial information
Demand for auditing

xix
xxii
xxv
xxviii

1
1
2
2
4
5
7
8
14
18
23
23
24
26
26

28
28
29
30
33
33
37
39
39
41
44
45

ix


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CONTENTS

Conditions creating demand for auditing
Theoretical explanations of the demand for audit services
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

3 Auditing, Organization and Governance
Leaning objectives
Introduction
Auditing and organizations
The economics of corporate governance
The governance malaise
Essential elements of corporate governance
Corporate governance and corporate reporting
External auditing and corporate governance as a multidisciplinary field
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

4 The Audit Committee, Internal and External Auditing
Learning objectives
Introduction
Overview of governance mechanisms
An overview of audit committee and its place in corporate governance structure
Basic functions of the audit committee
Evolution of the role of the audit committee
Audit committee independence
Economic determinants of audit committee independence
Oversight role of the audit committee in corporate financial reporting
The relationship between the audit committee and internal auditing
Oversight role of the audit committee in financial risks and internal control
The audit committee and independent auditors
Audit committee and compliance with laws and codes of conduct
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions
Appendices

x

46
49
60
60
62
64
64

66
66
67
67
72
75
76
81
84
87
88
89
90
90

92
92
93
93
94
95
96
97
97
101
105
108
112
113
114
115
116
118
118
120


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CONTENTS

5 International Auditing and Assurance Services
Learning objectives
Introduction
Generally accepted auditing standards (GAAS) in the US
The IFAC and the international harmonization of auditing standards
International Standards on Auditing (ISAs)
The International Auditing Practices Committee and ISAs
Role, composition and objectives of the IAASB
The framework of International Standards on Auditing
General principles of an audit
The International Standard on Assurance Engagements (ISAE 3000)
Principles and essential procedures for assurance engagements
Harmonization of accounting standards
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

6 Auditing in the European Context
Learning objectives
Introduction
European directives in statutory auditing
Eighth European Directive (1984) and approved new Eighth Company Law on
statutory audits (2005)
Features of the approved directive on audits of company accounts
Other European Commission actions in statutory auditing
Summary of the European Commission priorities in auditing
European Commission’s strategy with regard to US regulations
European Federation of Accountants (FEE)
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

7 Auditor Independence and Professional Ethics:
International Issues
Learning objectives
Introduction
The fundamental ethical principles of the audit profession

126
126
127
127
129
131
132
132
138
139
140
145
151
154
155
156
157
157

159
159
160
160
161
162
166
169
177
178
178
179
180
182
182

184
184
185
185

xi


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CONTENTS

Auditor independence in question
The economics of auditor independence
Definitions of threats and risks to auditor independence
Auditor independence in the European context
The position of US regulators on auditor independence
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

8 Audit Risk, Materiality and Business Risk Management
Learning objectives
Introduction
Different types of audit risk
The audit risk model (ARM) at the planning stage
The external auditor’s risk assessment procedures
The auditor and materiality assessment
Selecting appropriate controls in audit risk assessment
Risk assessment and the auditor’s understanding of the company
The auditor’s concerns about significant risks
Business risk
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions
Appendix

9 Audit Sampling Techniques
Learning objectives
Introduction
Uncertainty and audit sampling
Evidence and sampling
Sampling risk
Non-sampling risk
Statistical and non-statistical sampling
Comparison of statistical and non-statistical sampling approaches
General discussions on audit sampling
Audit sampling techniques
Steps involved in statistical sampling
Concluding remarks
Bibliography and references

xii

190
195
201
202
206
209
210
212
213
214

215
215
216
216
221
228
228
230
231
232
233
236
237
238
239
240
241

242
242
243
243
244
244
246
247
249
249
259
267
275
276


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CONTENTS

Notes
Review questions
Discussion questions

10 Evidence and Decision Making in Auditing
Learning objectives
Introduction
The concept of audit evidence
Some reflections on audit evidence
The use of assertions in obtaining audit evidence
Audit procedures for obtaining evidence
Auditing as a decision-making process
Bounded rationality and heuristics in auditing
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

11 Internal Control over Financial Reporting and IT
Environment
Learning objectives
Introduction
The need for control
Internal control definition
Internal control framework
Relationship of objectives and internal control components
‘Tone at the top’ or ‘control environment’
The auditor’s understanding of control environment
Limitations on internal control effectiveness
The auditor’s understanding of external environment
Essential terms used in reporting on internal control
Assessing the reliability of internal control
Management’s and auditor’s reports on internal control
The ‘top-down approach’ to audit of internal control
Enterprise Risk Management (ERM)
Effectiveness of internal control in an IT environment
Developments in the audit of internal control within the IT environment
Features of the COSO report in the area of IT
The US Sarbanes-Oxley Act and IT controls
The IFAC on IT and audits of internal control
Concluding remarks
Bibliography and references

276
277
277

279
279
280
280
283
284
285
290
294
298
299
299
300
300

301
301
302
302
303
303
309
309
310
313
314
315
316
316
319
320
323
323
324
326
329
331
332

xiii


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CONTENTS

Notes
Review questions
Discussion questions

12 Audit Reporting
Learning objectives
Introduction
Reporting standards
Types of audit reports
The standard audit report
Forming the opinion on the financial statements
Departures from standard audit report
Qualified reports
‘Adverse opinion’ qualified audit report
Disclaimer of opinion
Other reporting responsibilities of the external auditor
Auditor’s report in European countries
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions
Problems
Cases
Appendix (auditors’ reports in the European countries)

13 Information Technology and Auditing
Learning objectives
Introduction
An overview of the IT environment
Challenges facing auditors in an IT environment
Auditing and electronic commerce and electronic business
Reliability of accounting information and IT risks
Audit risk in an e-commerce environment
Information technology risk management
Planning the audit in a computer environment
Auditor’s concerns regarding risk assessment in an IT environment
Computer-assisted audit techniques (CAATs)
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

xiv

333
334
334

336
336
337
337
339
341
343
344
349
359
360
362
368
368
369
370
371
372
373
374
382

387
387
388
388
389
390
392
396
399
400
400
402
412
412
413
414
414


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CONTENTS

14 Continuous Auditing and Continuous Reporting
Learning objectives
Introduction
An assessment of IT in organizations
IT controls and the auditor
COBIT framework
Information technology advances and assurance services
Continuous reporting
An overview of XBRL
An overview of continuous audit: assurance in a real-time economy
Continuous assurance
Continuous monitoring
Similarities and differences between continuous monitoring and continuous auditing
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions
Appendix

15 Quality Control and Oversight Systems in Auditing:
International Issues
Learning objectives
Introduction
An overview of quality control in auditing at international level
Setting standards in auditing
Ethical standards
Public oversight of the auditing profession
Self-regulation
Monitoring, disciplinary schemes and sanctions
The position of the IFAC on quality control
Audit quality control in the European Union
Audit quality control in the United Kingdom
Audit quality control in the United States
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

416
416
417
417
420
420
423
424
425
429
433
434
435
437
437
438
439
439
441

442
442
443
443
446
446
447
447
448
448
456
458
460
465
466
467
469
469

xv


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CONTENTS

16 Auditor Liability in a Changing Environment
Learning objectives
Introduction
Company accounts: who is liable?
Economic analysis of auditor’s liability
The increasing litigation risk against auditors
Changes in the legal environment
Types of audit professional liability
The German experience of capping auditor liability
Mandatory insurance for corporate directors
Efforts to modify unlimited auditor liability system
Threatened litigation in assurance services
Common law and statutory law
Auditor liability in the US
The European approach towards auditors’ liability
The UK profession’s plea for auditor liability reforms
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

17 The Independent Auditor, Stock Markets and
Lending Decisions
Learning objectives
Introduction
The auditor’s role in corporate financial reporting
The critical role of auditors and the changing audit environment
Auditors and the capital market
An overview of market efficiency
Demand for capital market research in accounting and auditing
Event studies in accounting and auditing
The relationship between audit opinion and stock price
Problems of research design
Contributions to research on audit reports in the 1980s
Complementary studies in the 1990s
Lending decisions, accounting information and the independent auditor
Future research directions
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

xvi

471
471
472
472
473
474
475
476
481
482
483
483
484
485
486
489
491
492
493
494
494

496
496
497
498
498
499
500
503
503
506
511
513
516
518
522
524
524
528
530
530


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CONTENTS

18 Corporate Fraud, Corporate Scandals and
External Auditing
Learning objectives
Introduction
Fraud and error in financial statements
The importance of the concept of fraud in corporate reporting and auditing
Auditor’s responsibilities for detecting material misstatement due to fraud
Audit procedure to identify the risks of material misstatement due to fraud
Red flags of fraud: ‘warning signals’
Temptation to manage earnings
The audit profession and corporate financial failures
Enron
The WorldCom collapse
Evidence from the audit failure at Lincoln Savings and Loan
The Parmalat scandal
Bank of Credit and Commerce International
The Royal Ahold case
Concluding remarks
Bibliography and references
Notes
Review questions
Discussion questions

19 Auditing: Looking Ahead
Learning objectives
Introduction
How the audit profession got to where it is today
The bubble economy: does it do more harm than good?
Audit concentration
Implications of firms moving into consulting services
Challenges facing the audit profession
Regulators’ reaction to audit concentration
Regulation and monitoring: can the auditing profession regulate itself ?
Audit education for the twenty-first century
Research in auditing as an imperative
Auditors facing a world of change
The revolving door: auditor tenure and audit quality
Economics of audit pricing: a challenge for the audit market and regulators
The litigation crisis
Globalization of markets and harmonization of standards
Where do we go from here?
Concluding remarks
Bibliography and references

532
532
533
533
535
542
543
547
550
555
556
560
562
563
565
568
570
571
573
575
575

577
577
578
578
580
581
582
584
589
591
592
594
594
596
597
599
599
600
604
604

xvii


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CONTENTS

xviii

Notes
Review questions
Discussion questions

606
607
607

Glossary
Index

609
634


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List of Figures

2.1
2.2
2.3
2.4
2.5
2.6
2.7

Auditor Function as a Value-Added Factor in Corporate Financial Reporting
Parties Demanding Financial Statement Information
Supply of Financial Statement Information
Financial and Information Flows in a Capital Market Economy
Auditors’ Role in Supply and Demand of Financial Information
Conflicts of Interest Between Shareholders and Managers
Role of External Auditor in Monitoring Information

30
34
40
42
45
56
58

3.1
3.2
3.3
3.4
3.5

Shareholder, Manager and Auditor Relationships Within an Organization
Major Contributions to the Evolution of the Theory of the Firm
Essential Elements of Corporate Governance
Financial Reporting Process
The Relationship Between External Auditor and Company

68
75
77
83
85

4.1
4.2
4.3

Governance Mechanisms
The Three-Legged Stool of Financial Reporting
Current and Emerging Issues Facing Audit Committees

94
102
110

5.1
5.2

International Standards on Auditing, Assurance and Related Services
Differences Between Reasonable Assurance Engagements and Limited
Assurance Engagements
International Financial Reporting Standards (IFRS) and International
Accounting Standards (IAS)

134

163

6.4

Measures Proposed in the EU Directive on Statutory Auditors and Audit Firms
Specific Measures of the EU Directive (2005) Applicable to
Statutory Auditors and Audit Firms of Publicly Listed Companies
Measures Included in the EU Directive (2005) to Reinforce Public
Oversight of the Audit Profession
Ten-Point Action Plan on Statutory Audit

165
167

7.1

Prohibited Non-Audit Services

200

8.1
8.2
8.3

Overview of the Audit Process
Example of the Audit Risk Model
Example of the Inverse Relationship Between Detection Risk and Inherent
and Control Risks
Event Sequence

218
224

5.3

6.1
6.2
6.3

8.4

144
153

164

225
226

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LIST OF FIGURES

8.5
8.6
8.7
8.8

Event Sequence with Prevention by Controls
Interrelationship of the Components of Audit Risk
Identifying and Assessing Risk from a Risk Management Approach
Risks Affecting a Company’s Business

226
227
234
236

9.1
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9
9.10
9.11

Types of Sampling Risk for Tests of Controls
Types of Sampling Risk for Substantive Tests of Details
Factors Influencing Sample Size for Tests of Control
Factors Influencing Sample Size for Substantive Procedures
Differences Between Attribute and Variable Sampling
Reliability Factors for Overstatements
Expansion Factors for Expected Misstatement: PPS Sampling
Sample Size Table for Attribute Sampling (10% Risk of Overreliance)
Sample Size Table for Attribute Sampling (5% Risk of Overreliance)
Statistical Sample Evaluation Table (10% Risk of Overreliance)
Statistical Sample Evaluation Table (5% Risk of Overreliance)

245
246
252
253
259
265
266
270
271
272
273

11.1
11.2

Internal Control Components
The Evolution of Risk Management

305
322

12.1
12.2
12.3

Hierarchy of Types of Audit Reports on Company’s Financial Statements
Example of Auditor’s Standard Report on Financial Statements
Example of Qualified Report: Disagreement on Accounting Policies
(Inappropriate Accounting Method)
Qualified Report: Disagreement on Accounting Policies
(Inadequate Disclosure)
Example of the Auditor’s Unqualified Report When the Note Disclosure
on Going Concern Assumption Is Adequate
Example of the Auditor’s Qualified Report When the Note Disclosure
on Going Concern Assumption Is Not Adequate
Example of the Auditor’s Adverse Opinion When the Note Disclosure
on Going Concern Assumption Is Not Adequate
Example of Auditor’s Adverse Opinion Report
Example of Auditor’s Report with a Disclaimer of Opinion Because of a
Scope Limitation
Review Report on Interim Financial Statements
Sample audit reports in France, Germany, and the UK
US Unqualified Report
Results of FEE Study on Non-Compliance of Auditor’s Report in European
Countries with ISA Requirements: Summary of Differences to ISA 700

340
342

13.1
13.2

IFAC Risk Management Approach in an E-Business Environment
Advantages and Disadvantages of CAATs

399
403

14.1
14.2
14.3

Common Elements of Organizations
Traditional Auditing and Continuous Processes
Continuous Assurance

418
431
434

12.4
12.5
12.6
12.7
12.8
12.9
12.10
12.11
12.12
12.13

xx

349
351
356
357
357
361
363
366
376
380
383


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LIST OF FIGURES

15.1
15.2

Framework for Quality Control in Auditing
Relationship Between High Quality Audits and Auditing Standards

444
446

17.1

Summary of the Studies Regarding the Relationship Between Audit
Reports and Financial Markets

507

18.1

The Enron Case by the Numbers

557

19.1

Breakdown of Gross Fees According to Accounting and Auditing, Tax and
Management Consulting (Percentage of Gross Fees)
Comparison of Historical and Future Assurance Services

583
601

19.2

xxi


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Preface

The world of auditing and accountancy is changing rapidly. The recent spate of corporate
scandals and financial failures has highlighted in dramatic fashion the need for immediate
reform. The financial markets of the world urgently need higher quality information and
greater control and accountability over corporate executives and auditing firms.
Auditing: An International Approach analyses the role of external auditors today and the
need to expand their role beyond traditional financial statement audits. It presents external auditing in a new way, with a focus on fundamental, theoretical issues pertaining to
the framework and conceptual structure of auditing on a global scale. This is balanced
with a thorough and careful consideration of audit practices.
The role of the auditor is considered in the business and financial decision-making
processes of the market economy. The book presents auditing as a complex judgement
and decision process affected by real-world behavioural and environmental factors, rather
than just as a mechanical, standards-driven process. While almost all the principal issues
of auditing are covered (such as assurance and attestation services, audit reporting, expectation gap, independence and ethics, internal control, reputation, litigation, legal liability,
materiality, audit evidence, risk, sampling, decision-making), the auditor’s role as an economic agent in the capital market economy and corporate decision-making process is
also considered. The book discusses topics such as: the philosophy of auditing as a field
of knowledge (Chapter 1); the supply and demand dimension of auditing (Chapter 2);
expectation gap (in several chapters, particularly in Chapter 2), the place of auditing in
organizations and its relationship with corporate governance and audit committees
(Chapters 3 and 4); the international environment of auditing (Chapters 5 and 6); judgement and decision-making in auditing (Chapter 10), audit quality control (Chapter 15),
auditors, stock prices and lending decisions (Chapter 17), auditing and corporate fraud
(Chapter 18), continuous auditing (Chapters 14 and 19), as well as technological advances
and auditing in an information technology environment (Chapters 13 and 14).

Objectives of this book
This book reflects on auditing as a discipline rather than discussing only the practices of
auditing. The book discusses auditing concepts for a changing environment and how
auditing responds to developments to meet public expectations. This is based on the
premise that the auditing profession and regulators can no longer develop regulatory
standards and practices in an ad hoc way. To maintain its reputation and credibility, the
audit industry must adapt in a changing environment.
The approach of this book emphasizes the debate over what auditing ‘ought to be’ and
how it should keep pace with change. The author believes that this approach awards
auditing its rightful, prominent place in the market economy as an added-value function
xxii


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PREFACE

and part of an effective and efficient corporate reporting process. In a changing environment, there is an urgent need to move away from the traditional role of auditor as simply
an attestor of historical financial statements.
The author does not seek to undermine the importance of practical aspects of auditing
– indeed they are extensively covered – but to understand and explain them better, and
even to look ahead to the future.

Features of this book
The main feature of this book is its coverage of four principal areas in auditing: the international dimension including standards; theory and research, major auditing and multidisciplinary topics. It provides a carefully balanced presentation of auditing theory and
practice through its international and multidisciplinary coverage of auditing issues and
related topics. More specifically, the book examines:






The theoretical foundation of auditing. Throughout the chapters many relevant
research studies are presented and discussed. These include the following: a discussion
on the philosophy of auditing; auditing as a field of knowledge; the relationship between auditing and scientific disciplines; the contribution of theoretical concepts to
auditing practices; the economics of information; the demand for and supply of assurance services; auditing and organizations; auditing and corporate governance; auditor
independence and ethics; decision-making in auditing; auditing and stock prices and
lending decisions; and the economic pricing of audit services.
The international aspects of auditing. Unique in its extensive coverage of international
issues, the book provides an understanding of the evolution of auditing around the
world. This includes an examination of international standards (IFAC), professional
standards and regulatory bodies in the US (SEC, PCAOB, AICPA) and the European
Directives and recommendations. The IFAC standards, EU directives and recommendations and, where appropriate, the US auditing standards (PCAOB and AICPA) are
presented in relevant chapters. Chapters 5 and 6 are devoted to international auditing
and European directives and recommendations respectively. Moreover, general auditing issues in an international context have been presented in different chapters, for
example: auditor independence and ethics (Chapter 7); internal control over financial
reporting (Chapter 11); audit reporting (Chapter 12); IT and continuous auditing
(Chapters 13 and 14); audit quality control (Chapter 15); legal liability (Chapter 16);
auditing and financial markets (Chapter 17); and the issues related to audit environment with regard to corporate and audit failures (Chapter 18). Although this book is
not based on US standards, the PCAOB and AICPA auditing standards and SEC regulations are discussed (for example with regard to audit risk, business risk, sampling,
internal control, audit reporting, corporate governance and audit committee).
Innovative approaches to auditing and assurance services are also studied, including
recent developments in external auditing and audit committee, audit risk, real-time
reporting and continuous auditing, COBIT, auditing and technological advances,
assurance services, internal control and auditing in the IT environment, and recent
audit and governance regulations. These sections raise awareness of the challenges
facing the auditing profession.
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PREFACE


The multidisciplinary approach examines the relationships between auditing and
organization, between auditing and corporate governance (and audit committee),
auditing and financial market, auditing and corporate financial reporting, and auditing
and information technology systems. Through this analysis we can better understand
and appreciate the role of auditing within its wider context.

Elements of each chapter







Learning objectives, summaries, and explanations of terms to reinforce learning.
Summaries of topics on almost every page.
Extensive references – rare in auditing books – as guides for further reading, research
work and advanced studies.
Review and discussion questions to allow the students and other users to test their
learning and to encourage classroom discussion.
Extensive glossaries (rare in current textbooks).
Up-to-date citations of regulators and scholars specializing in different areas of auditing.

Audience
This book has been created for advanced auditing and accounting courses (and businessrelated degrees) at upper undergraduate and postgraduate level. The author believes that
some chapters will also interest professionals, regulatory bodies and researchers. This
work presents auditing in today’s uncertain business environment and also looks ahead
and aims to open discussion about the future of assurance services. Although an in-depth
discussion of every issue is obviously not possible, the book does try to provide sufficient
references for those readers who would like to pursue further reading and research in a
particular area.
The book is organized around the most important topics such as auditing and organization, auditing and corporate financial reporting, international auditing, fundamental
topics in auditing (demand for auditing, independence and ethics, evidence and decisionmaking, risk and sampling, internal control, audit reporting, information technology,
quality control, legal liability and litigation, and audit failures).
All this is addressed in nineteen chapters with an extensive glossary. An outline of the
contents is given at the start of each chapter.
Bahram Soltani

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