Chapter 1: International Auditing Overview
A. Historical background1.Anthropologists have found records of auditing activity dating back to early Babylonian times (around3,000 BC).2.The practice of modern auditing dates back to the beginning of the modern corporation at the dawn of the Industrial Revolution.3.Management and financial reports: the flow of investor funds to the corporations and the whole processof allocation of financial resources through the securities markets has become dependent to a very largeextent upon reports made by management. Management can scarcely be expected to take an impartialview of this process.4.The role of an auditor: to provide with an independent and expert opinion on the fairness of thefinancial reports.B. The Auditor, Corporations and Financial InformationBy the audit process, the auditor enhances the usefulness and the value of the financial statements, but he alsoincreases the credibility of other non-audited information released by management.
C. Accounting and Auditing Standards1.Many countries have issued local auditing standards under which companies are audited in their homecountry.2.International Accounting Standards: The International Accounting Standards Committee (IASC) hasworked for over twenty years to harmonize international accounting standards and its pronouncements,International Accounting Standards (IAS). The IASs have been adopted by many countries which do nothave their own national accounting standards or which believe that international comparability is to bepreferred.3.International Auditing Standards: Auditing standards were required by multinational corporations whichwanted a world wide, consistent, high quality audit. International auditing standards have existed since theInternational Federation of Accountants (IFAC) came into being as a result of initiatives put forward in 1973and approved in 1977. Although ISAs are not required by all countries, we will use them as the basicstandards throughout this book because they represent the highest and best international representation of generally accepted auditing standards.4.A listing of the International Standards on Auditing is given llustration 1-1.D. Audit definitions
There is no definition of an audit, per se, in the International Standards on Auditing. The definition given inISA 200 states the
objective of an audit
, “The objective on an audit of financial statements is to enable theauditor to express an opinion whether the financial statements are prepared, in all material respects, inaccordance with an identified financial reporting framework of other criteria.
A better, more general definition of auditing is the definition put forth by the American Accounting Association
An audit is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between theseassertions and established criteria and communicating the results to interested users.
”a.An audit is a
approach: the audit follows a structured, documented plan (audit plan).b.An audit is
conducted: an audit is an independent, objective and expert examination andevaluation of evidence.c.The auditor
obtains and evaluates evidence
. The auditor assesses the reliability and sufficiency of theinformation contained in the underlying accounting records and other source data.d.The evidence obtained and evaluated by the auditor regards
assertions about economic actions and events
. The basis of evidence gathering objectives, the thing that the evidence must “prove” are the
of management.e.The auditor
ascertains the degree of correspondence between assertions and established criteria
. Theaudit program tests most assertions by examining the physical evidence of documents, confirmation,inquiry and observation.f.The goal, or objective, of the audit is
communicating the results to interested users
. The audit isconducted with a view of expressing an informed and credible opinion, in a written report.
HAYES - Principles of Auditing, an international perspective